7 Things To Watch Before Investing In Gold Miners

 

  • Investing is about risk and reward. I feel many miss the risk part when it comes to investing, especially in the mining environment.
  • I discuss 7 risk factors that will help you avoid investing in the wrong miners.
  • ETFs, with their mindless investing strategy, are increasing the danger of investing in the mining environment.

Miners, especially gold miners (GDX) (GDXJ), don’t have a great reputation in the investing world. Unfortunately for them, that is rightfully so. It is often the case that the management is more focused on the stock market, than on business performance. A quote from the 19th century explains it very well!

Gold mining stocksIn such an environment, one must be very careful. The key is to understand the risk and not do stupid things like investing on hope or going after a good story.

An investment in a miner has to be founded on a real business analysis of its fundamentals and a careful assessment of the risks and rewards. On top of that, one should know the miner’s sensitivity to the respective metal’s cycle.

Investing while excluding the above, cannot even be called speculation, it is pure betting and you know what are the odds when it comes to betting.

In this video I share 7 things to analyze when investing in miners, or at least to take into consideration when analyzing the risk and reward of a specific investment. The things to watch are the following:

(0:39) – ETF ownership and business value

(1:47) – A general valuation of miners

(3:40) – Book values are often misleading

(6:05) – Advertising your own stock with Google ads

(7:09) – Example of operational risks in the mining industry

(7:53) – Dividends and cash flows

(9:00) – The value within junior miners and the Van Eck Junior miners ETF

Enjoy the video.

Discussion On Gold – From Price To Portfolio Exposure

Summary

  • There is a big difference between a short term and long term perspective on gold.
  • As gold offers no yield, it is better to consider it a hedge.
  • Therefore, proper portfolio exposure is crucial. We discuss various options on how to find the best exposure for your portfolio.

Investing in gold (GDL) is dangerous. It is easy to get carried away by the many bull theses and become a gold bug.

I am not saying it is not possible for gold to get to $5,000 or even $10,000. I am just saying that the investing theory might be right, but the timing might be wrong.

Therefore, portfolio exposure is crucial. The easiest way to approach this is to ask yourself whether your portfolio can handle gold at $600. If it can, and you are ready to add more, to have proper portfolio exposure in the unlikely case that happens, you have a well balanced exposure to gold.

In the video we discuss:

  • how the dollar affects gold in the short term,
  • how gold is influenced by central bank activity in the long term,
  • what are your portfolio exposure options and possible outcomes when it comes go physical gold and gold miners.