With gold and silver prices range bound for 1.5 year now. After the gold’s highs at around $1,920 in September 2011 and silver’s highs at $49 in April/May 2011, the prices have been jumping in a fixed trange with support at $1,520 gold and $27 silver.
As true gold or silver investments, the mining shares have performed even worse. Since the highs of the miners early 2011, the mining index HUI has moved from 600 points to 370. The junior miners performed much worse: from 38 early 2011 to 16 early 2012, standing now at about 20.
We wrote earlier about Rick Rule his expectations for the resource market in 2013. In particular the miners will face the following challenges:
- Surging input costs are surging and will continue to do so. The cost for energy, steel, construction, etc are increasing worldwide and are a real challenge for resource companies.
- Because of the tight equity and debt markets, resource companies have no easy access to capital.
- Depletion keeps on challenging resource companies. The likely effect will be acquisitions of high grade discoveries.
The message was simple and clear: to be successful in the mining sector, you need to be very selective. That message was confirmed by Casey Research today. In their 2013 outlook, they shared five gold and silver investment tips with their subscribers:
- Keep share performance in context. Don’t sell a stock whose share price has “underperformed” during a period of bearish market sentiment, unless there are also serious operational difficulties that deserve the discount. While some of our picks did poorly last year, I’m convinced we have the best of the best in our portfolio. We’ll advise, of course, if we think a company should be sold, but many of our weaker performers simply haven’t had their day in the sun yet.
- Don’t chase last year’s results. Last year’s winner is unlikely to also be this year’s champ.
- Keep buying physical gold and silver. The metals have advanced every year since 2001 (save silver in ’08 and ’11), and we fully expect this trend to continue. That means the bullion you buy today should be selling for a higher price by year-end 2013 and entails less risk.Gold and silver should be viewed as money. We believe serious inflation lies ahead from ongoing currency dilution, making it highly likely we’ll someday use precious metals to maintain our standard of living. Buy now before prices break out of their trading ranges.
- Focus on only the strongest companies. Experienced and proven management, robust production growth, low costs, a strong balance sheet, and operations in low-risk political jurisdictions define a solid company. Owning companies that meet these criteria gives us the best shot at owning a 2013 winner, while mitigating risk.
- Diversify your picks. Don’t put all your money in one or two stocks. If you already own several strong gold miners, determine if you need to adjust your portfolio so that the risk – and potential reward – is spread around.
Investing in the metal should be the core of each portfolio. Casey Research published today an interesting paper today. In it, they wrote that the last time there was such a good buying opportunity in gold was during the financial crisis of 2008. During that year, gold lost 27.7%, only to shoot up 166% over the next three years (from $712.50/oz to $1,895.50/oz). How high it will rebound this time is anyone’s guess, but one thing’s for sure – Casey believes people should not wait for $2,000 gold to get as prices will go much higher.
Read more in the 2013 Gold Investing Guide from Casey Research. Learn about ways to leverage gold – from bullion to stocks to ETFs and more. Get the full report for free .