Tip 7/7: Gold & Silver stocks can have high yields – You will need to do research first

Tips to increase your wealth by investing in Gold & Silver

Tip 7: Want to invest in Gold & silver stocks? Very good, but focus on pure gold or silver players and a thorough research is mandatory.

Yes gold and silver have both a “golden” future till there are signs of a mania (but that’s still far away). The gold and silver mining companies however have an even better outlook … at least some of them! Higher gold and silver prices mean of course higher profits for the mining companies. Yes they are encountering higher costs as well, but the increased profits will offset the costs.

Be careful however, not all mining companies have the same bright future. Some miners will do extremely well, but most will not. You need to make a distinction between three types of gold and silver miners:

  1. Senior mining companies, who have several operating mines in production, mostly across the world. Examples include Barrick Gold, Newmont Mining, Goldcorp, Franco Nevada, etc. Investing in those companies is a safe bet.
  2. Mid-tier mining companies are producing the metal as well, but they are much smaller in scale. Their potential in terms of returns are bigger, based on the profits they can realize, the reserves they have under the ground, etc. Examples include New Gold, McEwen Mining, First Majestic Silver, Endeavour Silver, etc.
  3. The junior mining companies just started to produce or are in the process of starting up. Starting up a mine is a very intense business, so the need for resources is big and so is the associated risk. That’s why they have the biggest potential as well. Warning: experts like Rick Rule are expecting a minority of the junior miners to be successful (some 10 to 20% only). You need to do a thorough research to discover the ones that will create economic value. The ones that do succeed however, will bring extraordinary returns.

Here are some high-level insights you need to take into account :

  • Select only pure gold & silver producers. Why? As the economy is slowing down (stagnating) and inflation is rising (stagflation), the operating cost for mining companies will rise as well. Gold and silver are expected to do well in such an environment, but base metals not necessarily.
  • Focus on companies that have wealth in the ground (large discoveries) or reserves above the ground. That’s where the real value will be when gold prices and silver prices are going higher.
  • The number of discoveries is decreasing; gold and silver in the ground is becoming more and more scarce. That means that miners with mineral rich properties are the ones with real value.
  • Mid tier mining companies are the ones with the highest potential to grow in a financially difficult environment. They need to have a minimum amount of cash in order to be as independent as possible.
  • Other criteria you need to look at include the management of the mining company (you can trust legendary company builders like Rob McEwen or Pierre Lassonde), the number and quality of mines / exploration, financial health, political environment of the countries where the company has activities, etc. Details in this document from Casey Research

“Royalties” is an interesting business model which excludes the mining risks but profits from higher gold and silver prices. Companies in this segment are Royal Gold, Franco Nevada, Silver Wheaton but also smaller ones like Sandstorm Gold. They receive a continuing stream of guaranteed income (royalties) from an active gold or silver mine, which they get in return for investing capital to build a mine.

Make very well considered choices in your portfolio for each segment: senior / mid tier / junior / exploration companies. The last ones are extremely speculative, which have potentially extremely high rewards but carry extremely high risks as well.

We highly recommend to ask for professional advice before investing in gold or silver stocks. We’ve tried a lot of newsletters and investment advice the past years; we’ve selected the best ones worldwide. One particular company that has tremendous knowledge is Sprott Global Resource Investments.

 


 

Beginners’ Guide – All Articles

 

INTRODUCTION TO THE WORLDS OF GOLD & SILVER

What’s This Financial Crisis About and What’s The Link With Gold & Silver?

Physical Gold: antidote against the ongoing global debt crisis

7 key benefits of owning gold and silver

7 Ways to Invest in Gold  and  7 Ways to Become a Silver Investor

Is Silver a Safe Investment  and  Are Silver Coins a Good Investment

Buying Silver is a Volatile Investment  and  The Value of Silver

Why To Buy Gold Bars as a Gold Investment

Understanding Gold Coin Prices

Understanding Gold Price Per Ounce

 

7 TIPS TO INCREASE YOUR WEALTH WITH GOLD & SILVER

Introduction: Now is the time to invest in gold and silver – 7 tips to increase your wealth

Tip 1: Gold and silver is for everyone – You too should own it

Tip 2: Be sure to have physical gold & silver

Tip 3: We are in stage 2 in the long term gold & silver bull market

Tip 4: Be prepared to see sudden price drops

Tip 5: Timing when buying is crucial

Tip 6: This is the century of silver

Tip 7: Gold & Silver stocks can have high yields

 

IS NOW THE TIME TO BE BUYING GOLD & SILVER?

7 facts proving we are in a long term powerful uptrend in Gold and Silver

Is This the Best Time to Be Buying Gold and Silver?

Gold Investments in 2012

 

THE BEST GOLD & SILVER INFOGRAPHICS

Is gold a bubble? Look at this Infographic for the answer.

Own physical Gold? This infographic explores Vaulted Gold as one of your options.

Infographic: all you need to know about Gold in the world