I’m assuming you read information that’s on WallStreetSilver.com on WHY to invest in silver. I expect you are here now because you want to invest and now what to know WHAT to invest in?
I’m not taking any money from you. You’re not my client. I’m not giving professional investment advice. Go talk to one of them. First, they might laugh at you. Then, come back here to see what you can do with your money to grow it.
Most people use metals to hedge against inflation. You might see wealthy people with millions perhaps have 2-3% “exposure” to gold. If their stocks take a dive, the value of their gold or silver is probably rising – hence wealth preservation. Right now, you could be one of those people sensing a high in the stock market and want to put a portion of your fortune into a “defensive” posture.
I’m sort of the opposite. Do NOT do what I’m doing. For the love of God, do NOT replicate this. I am of the nature that this whole damn thing is going down and I’m mostly in metals and hedge with equities. Interesting, huh? Yeah, don’t do it.
So whether you are hedging a positive equity market with a negative metals market or a positive metals market with a negative equity market – what the hell do you do with your money?
The first thing you are going to see when you start looking this up is “if you don’t hold it, you don’t own it”. There’s a lot of truth in that, and pretty much anyone that talks about investing in metals miners will first tell you to go get a stack first.
Maybe you live in a big city and have 3 roommates and you can’t exactly store thousands of ounces of silver at your house. Maybe you are on a ranch in Montana and have 6 large safes already for your guns and adding silver isn’t a big deal. You also then need to understand what your risk level is like. Are you trying to take a $10,000 investment to $1 million or are you just trying to preserve that spending power of the $10,000? This makes a big difference on what percent you put where. Maybe if you want to turn that $10,000 into $1 million, you go all in on risky silver miners. That $10,000 can likely then go to zero. If you just put it all into physical metals, it might not grow much at all over 30 years.
So walking into this whole thing is not one size fits all for everyone. What my goal here is, is to show you what vehicles are out there that you can put your money into explore silver and gold.
Lastly, precious metals are a cyclical investment. Most people in this field will tell you we are in a strong bull market and this could go up for quite some time yet. Maybe another 1-2 years? Others feel after a rise, it will fall back, then go to extraordinary levels through 2030. No one has a crystal ball. No one. So we assume there’s massive amount of upside here. When to get off of this train may not be apparent, and you might ride the wave up, then all the way back down. In this, I’ll also discuss the term “taking profits”. It’s not an investment strategy, but a way to “realize” gains to protect yourself.
Below, I’m going to post an overview chart you can use. What you can do is determine, for YOU, where your risk is and what instruments you want to invest in. I’m not adding the 401k types of options with this simply because I know nothing about them. Given metals are extremely cyclical, I personally am not doing anything with a retirement account with them, but your mileage may vary if that’s your thing. I’m looking at the reader right now as if silver just hit $35 and you are rushing to get in to SOMETHING to play this. Maybe you bought some physical and left it there. H
Here’s an overview of the options out there. Below, I’ll discuss more about them and WHY you’d pick them. And..why you might stay away from them. Yes, this is my crappy chart craftsmanship. Take it up with management.
Layer 1: Physical metals
What it is. It is what you think it is. Holding the shiny in your hands. It’s beautiful. Heavy. Dense. Money for 5,000 years. Typically, these are coins, bars, and rounds. I have a whole post on buying physical metals. Check out “how to buy silver for the absolute noob“.
The big picture with physical is that it’s easy to fall in love with the physical, but when supplies are tight or when a mania hits, you’re probably seeing premiums that are stupid high. Consider the “spot” price of silver at this writing is $27.50, but you will probably see most prices everywhere mid to high $30s. If you walk into a coin shop and try to buy it at spot, you’ll be laughed out of the place. So let’s say you buy it at $36. You have to wait for the price to move up 50% in order to break even? Ouch. Security nightmare. Consider you have a decent amount of wealth. Why in the ever living hell would you put significant amounts of metal in your house that could be stolen? In the article, I essentially state that for MOST people, you are fine with just having some silver dimes and quarters at the house. Maybe 25 ounces per person? At issue is then trying to sell it back if the market turns south. Who is buying your 10,000 oz stash? No one.
When you first get involved in precious metals, getting some sort of stash is important, but an overwhelming amount of my wealth is in real estate and miners. The security aspect of this for me is not worth it. The purists out there will tell me I’m a sell out because I don’t hold it in my hands. Don’t care what you think. Any I did have I converted long ago to other things. You will see why this is a good place to start, but YOU have to decide if you want 100% of your precious metals exposure to physical or maybe just a small portion?
Layer 2: ETFs
There are better and worse quality to these, but I will leave it to the reader to come to their own conclusions. I prefer PSLV, but all ETFs essentially share the same traits in that you can invest extremely large sums of money with them and it is highly liquid to get in and out of. Only the whale investors can actually take physical out, but if they are taking it out, it’s not to bring home 1,000 oz bars to use as doorstops, but probably to transfer to a vault of their choosing. These will generally move with the price of the underlying metal. Some of these ETFs you can buy call options with, which can provide you some upside leverage. However, the idea here is to park large sums of money through your brokerage with them to realize gains over a long term. The one major downside most of these have is you are giving your money to the trust, and the trust owns the metal – not you. If the underlying institution goes belly up, what happens to your metal? Could they have sold this metal to many other people and during a bankruptcy these companies have first dibs on the metals?
Layer 3: Vault stored
In this scenario, your metals are not with you, but in a vault. You have to work with an intermediary for everything. It’s not like you can just walk in the vault and get it. With this option, there’s segregated. Your name is on a box/bin, or the like, and your metals are in there. The metals you put in, you get out. Supposedly. This costs you a decent amount in storage, and if you are buying from them, you might have high premiums. Maybe you have problems reaching your people on short notice to get your metals out.
With allocated, the concept is there is a pile of metals and you have a dedicated portion of that metal. Maybe there’s a pile of 100 oz and you own 10 oz. Maybe it’s the exact serial number, maybe not. I have seen different descriptions depending on who you are talking to. Point is, your metal is supposed to be there, on demand. I am not a vault dealer, and if you have questions on this type of thing you should go to goldsilver.com with Mike Maloney or call Bob Coleman who both have volunteered their time to the community to try and educate and deserves a look at for your business. Both of these guys have businesses to run and do not work for free. They want to get you a great product so you can make a fortune with your precious metals and they would protect that for you.
The last part of here I’m not going to go into too much because I don’t want to end up on the other end of a lawsuit. Unallocated metals are technically supposed to be metals “in the supply chain” that could be in the vault or could be potentially still underground with a contract on it to purchase it and it has not been refined yet. Depends on the dealer what unallocated is, but the rough overview is that it’s perceived as a form of fractional reserve system where your capital is helping them fund this metal and refine it. You have “exposure” to the price of metal, and if you want to then take your metal, perhaps a fraction of all of the metal in the unallocated is in the vault – and then you have to pay all kinds of fees to take it or switch to allocated. Instead of them financing inventory, you are the nice bloke who funds it for them. When and if you decide to take possession, they slap significant fees on this and while you could have it in a few days, during a panic rush you may not get your metals for months or years and instead may be paid out in cash – perhaps at the value you paid? Perhaps this is a poor description – but this has a terrible reputation amongst us as a means of “investing”. You are essentially funding their inventory for them, and they then tell you it’s “no storage fees”. Yeah. Thanks.
Layer 4: Digital
I liked this for a specific reason at a specific time, but I now have some other things I like better. I want to describe a hypothetical situation for you. A product called OneGold – owned by Sprott and Apmex, allows you to buy digital representations of gold and silver in their vaults. Meaning, they don’t promise you can take the silver or gold, but that it is backed by their vaults. IF you buy silver at $10 and it goes to $30, you can’t take your silver out. You get cashed out, then take that $30 to Apmex front end and you can buy silver with it at their best premium.
In this situation, imagine silver drops overnight to $5. Every coin shop on the planet is charging you $5 + $30 premium. The ADVERTISED price is $5, but you cannot find it anywhere for that. Spin up OneGold at 1AM, back the truck up and buy a TON. Price recovers a week later to $25. Sell. A March 2020-like event is great to have an app like this handy for all hours of the night when you get the fishing line price drops of $4 and it’s 4:30AM and you need to buy ASAP. Extremely liquid.
Layer 5: Cryptometals
I heard this term today by this guy (Thanks Jeff!). First time I ever heard it, and I like it. It was a conversation about Kinesis Money. I LOVE this product. Everything OneGold could do for me, this seems to do better. This is a different category because it is a combination of a lot of the above, but uses the blockchain to record your ownership of the metals. Kinesis uses ABX vaults all over the world, they have a front end platform for you to buy and sell gold and silver, and when you buy them, you get ownership of these metals in the form of a KAG (silver) or KAU (Gold). The metals are secure in a vault, you have ownership, there’s virtually no premium, AND you GET a premium to store/spend your metals as opposed to pay someone to hold them. In this case Kinesis has a rewards structure based off of the velocity of volume of metals spent which funds just about everything. For me, rather than keeping $1000 cash in my bank account to buy groceries/gas/dinner out every month, I can buy KAG/KAU and play the movement up in metals and use a debit card to spend this. I can also park massive quantities of metals there by sending in like a vault, and I can then send them over the internet using a digital token to pay someone in KAU/KAG if I want.
I did a big piece on Kinesis yesterday over lunch if you want to read. It’s telling you what it is, and why you need it. When I posted this article on WallStreetSilver, I got a lot of comments like “you’re an idiot. If you don’t hold it, you don’t own it”. As I mentioned, there’s a lot of ways to play silver and this rewards system and using sound money for spending money might appeal to you. You get the upsides of allocated and digital metals with the speed and portability of a cyptocurrency. Perhaps you don’t want to deal with $10 premiums? Go to Kinesis.money and buy as much as you want there, and maybe down the road you want to take delivery.
Imagine your country is in turmoil and you have to flee, in a hurry. You have 3,000 pounds of silver in your basement. At this moment, you are regretting life choices.
Suddenly, if you don’t hold it, you don’t own it sounds very silly. Maybe if you had 25 ounces to move quickly with, that would help. You flee on a plane in the darkness of night, and when you get to your destination, you go to an internet cafe and access to all of your gold and silver is there through Kinesis.Money.
Layer 6: Mining stocks
This is where a lot of my interest are. The big deal here is that if you hit on the right miner, you could get a 100x. These are obviously rare, but they happen. I wrote up something about investing in mining stocks so I don’t want to go crazy with this here, but point you to a place to look further. Don Durrett has a highly recommended book on investing in gold and silver with a focus on mining stocks, and I’m in the early stages of reading his book now. I wanted to add this for you for a DEEP DIVE. The purpose of what I provided to you were ideas of where you could put your precious metals allocation.
The big picture with mining stocks are they can run on incredible leverage to the underlying price of the metals. For a simple example, you could have…..
- Physical silver go 2x from $25 to $50
- A silver producer during that time could go 6x
- A silver junior producer could go 10x or more.
- A silver explorer with a major discovery of high grade? Crazy town. Below I show you how one I own could potentially move 45x in rising gold/silver prices.
I’m going to butcher the hell out of this, but as the story goes, silver miners in the 1960s had extreme leverage to the price of silver and they had a move that was 165x on average. Not 165%. 165x. I’m taking this from having heard this a few times and messing this up – but the idea is when silver moves a lot in price, the underlying producers and explorers can have violent moves.
Don’t believe me? First Majestic, a the largest silver primary producer has moved 8x in 2016 and 6x in the last year.
Now, the price move in 2016 was from $13 to $20 and the price move in 2020-2021 was from $12 to $30. That wick at the top was short lived as price was quickly smashed down – but most people in the industry feel $50 in the next year is more than reasonable and many feel that $100-$300 by the end of the decade is almost a given. I ask you – how much do you think these things will scream?
The concept is a miner is producing silver at perhaps $15 per ounce, and selling it for $25. $10 profit. If silver goes to $50, that is now a $35 profit. 3.5x profit on 2x move. But this also gets stupid fun on juniors that might be producing at $23 and selling at $25, making $2 profit. At $50 silver, they now have $27 profit, or perhaps 14x.
Here’s another example – Silvercrest. They are going into production next year. Mines might take 10-15 years to go through the process from start to finish.
This one is a 140x since 2016. How can you find these? You probably can’t. But the guys I recommended in my article above can – as Dave Kranzler pointed out Silvercrest at $.16 to his paid members. It has gone 80x since then. He charges $20 a month. Please, for the love of god, consider that ROI.
A silver mine like Discovery is not built yet, but has a 600m ounces in the ground. It might trade at $1 per ounce in the ground with the market cap. At $100 silver, what could that be trading at? It’s $60 billion in silver in the ground and the market cap is currently $750m? Really? These types of things tend to correct when people like you start to flood the market.
You then have a mine like Chesapeake gold – 19 million ounces of gold, 530m oz of silver. $305m market cap. So get this, it has about the same amount of silver as Discovery, but half of the market cap. Then….as a kicker, you have 19m oz of gold on top of it for free? So…when you start to see $100 silver and $3000 gold, companies like this might do a 50x. Think about it.
19m oz of gold at $3,000 per oz gold = $57B
530m oz silver at $100 per ounce = $53B
If you convert the silver to “gold equivalent ounces” you are looking at 17.6m GEO.
This is a total of 36.6 GEOs.
This is $110B in the ground, trading for $300m market cap.
If you then look at Newmont, on their website they show that they have 159m GEOs in reserves. To make math simple, Newmont has a roughly $60b market cap. This means the shareholders value Newmont at $377 per GEO.
If you take that $377 and apply that to the Chesapeake GEOs, you get $13,836,477,987.
If the market cap is now $305,374,400, that means the share price from now could run up 45x from now to be approximate fair market value. It might not happen for 1-5 years, but that’s the kind of leverage we look at in this industry.
IF you feel gold and silver are going up AND you want to introduce risk – miners are an optional layer for you to consider. In my article, I point out some great sources to consider for advice. I’m not that person, just opening the door to you on this.
Lastly, no one really finds these at the bottom and sells at the top, and none of these are on a straight line up. A method I have used a few times now in my 15 month mining stock investing career….
- If a stock hits a double, sell half, keep the other half for a free ride. I’m now up to over 10 doubles, thanks to the team of people I have hired to give me great picks. The most recent this week was Labrador gold, pointed out by the Junior Miner Junky. I got in at $.35. I sold half around a buck, and it’s now at like $.95.
- Sometimes, a stock runs up quickly and you didn’t get a chance to sell half at the double. I believe I’m at 4 or 5 triples now, the most recent was Vizsla which I sold out of a long time ago. Sell 1/3 to get your initial investment back, let the rest go as a free ride.
- “Trim” at times. If you see the RSI of gold and silver getting high, you will start to see mining newsletter guys talking about trimming their positions. Assume for a moment that you have a “standard” position of $2,000 for a mining stock as a normal buy. Maybe you REALLY like one and buy $3000. Maybe others you like a good amount and buy $2500. maybe some are a little risky and you are underweight at $1000 or $1500. Perhaps your “standard” position is now at $2700. You feel metals may pull back for 2-4 weeks. Maybe you then sell $350 or so to “trim”. maybe you take it to a standard position and trim to $2000. Metals pull back over a month and your position is now $1600. Buy more cheaper to dollar cost average. Metals are waves up and down. I watch the RSIs and listen to the pros as to when to maybe trim a bit. You need to consult your people to find what works best for you.
On the chart below, I highlighted where the RSI for silver was running a little hot. It is somewhat predictive of a move down. This shows where in the last few days I just trimmed a little anticipating a pull back. It might not happen. Still, I was able to lock in some profits and get some cash. I banked a double and got a free stock, allowing me to then use that money to buy in on another miner.
Next week I will be doing a video on this and plan on doing a video on the miners with this example in it to illustrate what upsides there are out there.
May 29, 2021 at 7:19 pm
Good breakdown of PM investing and the attendant risk / rewards. Your blogs are like a miner refining the overburden of PM investing information into investment-grade, good-delivery bars. While I welcome the sentiment behind WSS, sieving through shit-posts is like panning for gold – a few shiny flakes but a lot of annoying bugs.
PM investing is a small and reviled market compared to stonks. Eric’s Sprotts metaphor of PM investing is like being alone in a room with a party going on in another room. When the party wants your room they have to squeeze through one door. The stampede of money results in shocking price spikes.
Started buying gold @ $375/oz and over 20 years I have arrived at precisely the portfolio you warn against – and yes, in a retirement account: 40% PSLV/PHYS, 40% Major PM producers/streamers, 10% Junior and exploration, 10% “other”. When it’s up it’s way up but when it’s down … it’s not for the faint of heart.
May 29, 2021 at 8:39 pm
You are my hero for surviving 20 years of this. And yes, your portfolio is what I will be striving for. And not what I would recommend to anyone. I love to white knuckle it. I feel my investment thesis is very accurate and in that climate – I will do well to be a contrarian to most traditional equity investors at the moment.