Precious Metal Stocks Are Not An Investment They Are A Speculation

Preamble

Let’s start by defining investment and speculation and for this purpose, I have used Investopedia:

An investment is an asset or item acquired with the goal of generating income or appreciation.

Speculation refers to the act of conducting a financial transaction that has a substantial risk of losing value but also holds the expectation of a significant gain or other major value

Precious metals such as physical gold and physical silver are an investment and can be acquired and held for long periods of time.

Precious metals mining sector

The precious metals mining sector is not an investment for the simple reason that mines are being depleted of their treasure on a daily basis. Mining companies must either explore for new veins to mine, merge with other miners or acquire new assets in order to keep their pipelines topped up. Otherwise, production drops and investors flee. Indeed, we can all name a few mines that have been around for some time, but they are in the minority

Ask yourself the question, why it is that the precious metals mining companies pay a dividend which varies from miserly to nonexistent? 

May I suggest that the reason is because the money they earn is plowed back into the business in order to secure continuity of production. When an investor acquires shares in a mining company it is not for the dividends it is for capital appreciation.

On the other hand, mining companies as speculation are extremely risky but from time to time, they offer the possibility of stupendous returns to the speculator. It is often said that there is no fever like gold fever and the next one will be more spectacular than anything we have experienced in the past. I traded gold in the late ’70s and can vividly remember the euphoria that surrounded the dramatic rise in the price of both gold and silver. Is it different this time? You bet it is. The number of players back then was limited, but this time around anyone with a laptop or even a mobile phone, anywhere in the world can join in the fun at the press of a button.

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