Market Beat: Gold and silver mining
The California gold rush began in 1848 after James Marshall found some gold nuggets near Sutter’s Mill. Over 300,000 people ventured into California to seek their fortune in gold and California became the 31st state in 1850.
Mining was also very important in Nevada; the Comstock Lode is one of the most historic mining districts in the world. Gold and silver were mined there starting in 1859 and the lode produced millions of ounces of gold and silver. Nevada became a state in 1864 and is known as the Silver State. The state of Nevada is one of the largest gold producers in the world and mining is currently Nevada’s number two industry behind gaming. Most of the gold produced in Nevada is exported to foreign countries.
Diversification is one of the best risk management tools that investors have at their disposal and natural resources including precious metals should be part of an asset allocation plan. Gold and silver coins can appreciate over time because you have the collector value of the coins in addition to the precious metal that they are made of.
Precious metals have a history of being highly cyclical. The bull and bear runs can last for long periods of time. Gold hit an all time high of $1,895 per ounce in 2011 and hasn’t been that high since. Today, gold is about $1,288 per ounce. Gold hit a high of $850 in 1980, then reversed and it took until 2008 to break that record when it went over $1,000 per ounce for the first time and hit $1,011.
There are popular ETFs, or exchange traded funds, that represent gold and silver and of course there are many publicly traded mining companies to consider. GLD, the most liquid gold ETF, has gained 7.37 percent over the last six months.
The S&P 500 is broken down into 11 different sectors. One of those sectors is known as the Basic Materials sector. There are 13 different industries in the Basic Materials sector including the Gold and Silver industries. There is a gold miners ETF that consists of many of the major mining companies in the world. Over the last six months the GDX, or gold miners fund, has appreciated by 17.65 percent and it’s up by 14.32 percent over the last three months.
Using an ETF for an entire industry helps minimize the risk associated with owning single stocks.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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