XMFSinchiruna (28.54)

33 Comments – Post Your Own

#1) On June 02, 2009 at 3:21 PM, dividendhound (< 20) wrote:

What are your thoughts on gold versus other metals - copper, silver, etc.?

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#2) On June 02, 2009 at 3:52 PM, ChrisGraley (31.45) wrote:

Great article Chris!

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#3) On June 02, 2009 at 4:09 PM, jcjet (74.50) wrote:

Christopher

I read quite a few years ago that Russia had so much gold that if inclined they could flood the market wiping out investers gains and hurting the world markets. Do you know anything about this and or Russias gold?  If true Russia would most likely not hurt themselves yet in the political world today I wonder.

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#4) On June 02, 2009 at 4:14 PM, XMFSinchiruna (28.54) wrote:

Ragingsamosa

Well, I consider silver more precious then gold, because of the slingshot effect and its present ratio of gold to silver prices which -- while well off the worst levels -- remains out of whack with the historical mean. Over the coming phases of this precious metals bull market, I expect that ratio to be reduced to at least 20:1 (presently more than 60:1).

I am also extremely bullish on copper over the very long-term, but for different reasons ... copper is a play on the broader commodity resurgence as inflation really takes hold, I envision emerging economies requiring a whole lot of the stuff over the coming decade.  That being said, I am slightly cautious at this particular stage, feeling as though copper and some of the other base metals may have gotten ahead of themselves a bit. I see major volatility in the near-term, and consider copper miners at risk of being dragged down temporarily by any widespread sell-off of the broader equity rally. While precious metal miners could likewise find a little weakness, I believe they could also break from the pack and retain their strength under the right macroeconomic developments.

ChrisGraley

Thanks so much! I'm glad you enjoyed it!

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#5) On June 02, 2009 at 4:32 PM, vmh104 (< 20) wrote:

Chris,

Thanks for this. What are you recommendations for holding copper and silver other than copper and silver mines? I assume that silver ETFs have much the same issue as Gold ETFs (e.g. it's just paper). Is there something in Silver & Copper akin to the royalty based RGLD in Gold?

Thanks,

vmh104 (Vincent)

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#6) On June 02, 2009 at 4:57 PM, XMFSinchiruna (28.54) wrote:

jcjet

I think Russia would be far more likely to flood the world with USD than with gold (not that I consder that a likely scenario either). Russia continues to show significant interest in accumulating gold reserves, which is consistent with their desire to incorporate gold into the SDR alternate reserve currency that Russia is advocating. 

Russia has the 9th largest stash of gold in reserve among sovereign holdings ... less than half the amount of bullion held by the GLD ETF. By contrast, Goldcorp ... a single miner ... holds more gold in underground reserves than even China.

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#7) On June 02, 2009 at 5:02 PM, binv271828 (< 20) wrote:

As usual, excellent post and article!! Thanks.

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#8) On June 02, 2009 at 5:26 PM, XMFSinchiruna (28.54) wrote:

vmh104

Hi Vincent,

For silver, I always recommend that Fools consider Silver Wheaton. Not technically a miner, and not quite a traditional royalty company, Silver Wheaton is a pretty unique model in the industry.

http://www.fool.com/investing/general/2009/05/13/silver-wheaton-locks-in-on-silver.aspx

http://www.fool.com/investing/general/2009/02/23/silver-wheaton-breakfast-of-champions.aspx

http://www.fool.com/investing/value/2008/12/24/was-this-the-best-stock-tip-of-2008.aspx

http://www.fool.com/investing/value/2008/11/25/silver-selling-for-1-per-ounce.aspx

http://www.fool.com/investing/dividends-income/2008/11/05/a-great-time-for-a-slowdown.aspx

http://www.fool.com/investing/dividends-income/2008/10/07/make-silver-streams-your-golden-parachute.aspx

For base metals, there is International Royalty (ROY), which I also own in real life.

Good luck, and feel free to follow-up.

Fool on!

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#9) On June 02, 2009 at 6:46 PM, Jimmy2008 (< 20) wrote:

Sinchi,

In my real portfolio, I have about 80% in silver and gold stocks (SLW, AUY, HL, CDE, PAAS, SSRI, NG, JAG) and ETFs (CEF). Is it to much?

 

The rest 20% is in ag and oil.

I started in Nov 2008 and it gained about 85% since then (unrealized).

 

Thanks.

 

Jimmy

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#10) On June 02, 2009 at 7:09 PM, ChrisGraley (31.45) wrote:

I'm sure Chris will have a better answer shortly Jimmy, but I'll give you my view and that all depends on your views on risk.

You have an big exposure to deflation if that were to occur.  If your like me and think inflation is certain then you have the potential to hit a home run. 

Just remember that the market turns quickly so I would do some profit taking when you start to get some good gains, rather than trying to sell everything at once when the market goes against you.

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#11) On June 02, 2009 at 8:49 PM, XMFSinchiruna (28.54) wrote:

Jimmy2008

Every individual must come by their own allocation according to a process of research that makes sense for their given situation. An allocation is only as apt as your comfort level with it.

That being said, I can tell you what I've done, and it's pretty much identical to your allocation. I got started with this bull market back in 2005/2006, and have about that same 80% allocation in metals miners and bullion proxy exposure with some copper and very little base metals. I'm more heavily exposed to silver than I am to gold. My remaining 20% consists of energy and some select commodity plays. I will be looking to shave some profits into strength to raise cash in the account to about 10-15% eventually so that I can take advantage of massive volatility which I foresee for precious metals ... not getting fancy, but just buying a little weakness and selling a little strength here and there around an untouched core position which I will hold until at least my conservative price targets are reached.

ChrisGraley

Now that we've entered into quantitative easing, even deflation must occur against a much larger inflationary force. Please take extra time with item #6 in the article above ... even a deflationary spiral as its commonly conceived would lead to higher gold prices. That sounds incongruous, but I truly believe it is not.

With respect to your third paragraph, you might imagine that I had quite a painful run of it during the worst levels of this correction. It definitely wasn't fun to watch, but my core positions remained untouched and my losses remained imaginary. :) That's the beauty of investing in alignment with fundamental macroeconomic drivers that are well understood.

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#12) On June 03, 2009 at 10:09 AM, Jimmy2008 (< 20) wrote:

Sinchi,

I know that a lot of junior and exploration stocks are listed in CDNX. where and how can we buy them in US? I would prefer index for junior miners and energy companies. I use scottrade. Thanks!

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#13) On June 03, 2009 at 11:45 AM, Bays (33.59) wrote:

Great article, Sinch

 

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#14) On June 03, 2009 at 12:16 PM, fndr489 (72.41) wrote:

Is it better to own the physical asset (specie/bullion) than shares/ETFs or is that a matter of preference?  I know there's storage costs and potential theft issues if one actually owns the pyshical asset, but if there's a "Mother of all Black Swans" total financial meltdown, then wouldn't the shares/ETFs be worthless instead?

 Fantastic article, thank you.

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#15) On June 03, 2009 at 2:07 PM, XMFSinchiruna (28.54) wrote:

fndr489

Great question, fndr! Perhaps you've listened to Jim Rogers when he crafts his agriculture exposure through actual futures contracts rather than through related equities. :)

Physical bullion represents the ultimate form of insurance against a devastating breakdown of the entire financial system. Since we now know that we came within a few hours of just such a catastrophic metldown on September 18, 2008, the value of such infallible insurance is hard to dismiss.

Nonetheless, bullion ownership presents not only the logistical concerns you raise, but also carries a 28% capital gains tax rate since gold and silver bullion are treated as collectibles by the IRS. Bummer! 

I continue to recommend a four-tiered approach that includes physical, physical proxies, miners, and royalty companies. 

Good luck to you whatever you decide. :) 

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#16) On June 03, 2009 at 2:14 PM, ati2ud (< 20) wrote:

is there a way to work the actual bullion into an IRA account?

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#17) On June 03, 2009 at 2:57 PM, XMFSinchiruna (28.54) wrote:

Jimmy2008

Junior miners that are not cross-listed on American exchanges are usually still available on the OTCBB or pink sheets (with the suffix -.pk after a five-letter ticker). The more I come to learn about how the pink sheet system works, the more I'm looking to reduce my holdings of pink sheets into strength. These far-less-liquid issues are problematic, and it seems those who write the pink sheets are able to then use my would-be shares to go short. As I understand them, they are more of a promisary note than an actual equity.

http://en.wikipedia.org/wiki/OTCBB

Stocks traded in OTC markets such as the OTCBB or Pink Sheets are usually thinly traded microcap or penny stocks and are generally avoided by both retail and institutional investors due to fear that share prices are easily manipulated and there exists a potential for fraud. The SEC issues stern warnings to investors to beware of common fraud and manipulation schemes. As such, most companies choose to list on more established exchanges such as the AMEX, NYSE, or NASDAQ once eligible.

 

Jimmy, I would sooner suggest that Fools locate brokers willing to purchase shares for them on the Canadian exchanges themselves than I would recommend following my lead with these OTCs. If I had known in 2005 what I know today, there's no way I would own so many OTC issues.

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#18) On June 03, 2009 at 3:01 PM, ahobbs (< 20) wrote:

Sinchi,

 

Do you have an opinion on TIPS?  If the dollar falls in value, would this be reflected in the CPI and the principal adjustment on TIPS?

 

Thanks!

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#19) On June 03, 2009 at 3:16 PM, XMFSinchiruna (28.54) wrote:

ati2ud

One can purchase bullion holdings within an IRA, but in my view the difference between such allocated storage services and unallocated bullion proxies like the bullion ETFs from a practical standpoint are fairly slim. I'm not familiar with the storage costs for these IRA programs, but I presume the ETFs are more cost effective. I'm sorry I can't offer more detailed information in this ... I'm not even sure if one has the option to redeem the bullion from an IRA account, or whether it must first be converted to cash by the holder (for additional fees, I presume).

For more information, google "gold bullion ira", as I just did, and you'll find a host of services offered. I read up a little on this link, and perhaps they would be better equipped to answer your questions. Let us all know what you find out if you do. :)

 

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#20) On June 03, 2009 at 3:28 PM, ati2ud (< 20) wrote:

cool thanks for the link.  And duh right, sorry I could have googled it, or tried the new 'bing'.  I guess I was thinking maybe if there was a way to track the actual personal holdings someone might have in a safe or deposit box, if your paperwork was in order for buying and selling for tax purposes as part of your allowed yearly allotment etc... maybe a fantasy

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#21) On June 03, 2009 at 3:30 PM, XMFSinchiruna (28.54) wrote:

ati2ud

Feeling guilty for linking to a company I knew nothing about, I just checked the website of a bullion dealer that I do know to be a highly reputable dealer. You'll note that I mention APMEX by name in Part 1 of this article, and I recommend them without reservation. I see they have a page about creating a precious metals IRA, and that they too recommend that same Gold Star Trust company mentioned in the link I provided above. If you want to research this issue further, I suggest you call the folks at APMEX and have them explain the logistics.

Here's their FAQ on the topic.

Good luck, and please do let us know what you find out. I'd be curious to know what the custodial fees are like. Who knows, maybe this is a good way to go for some investors.

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#22) On June 03, 2009 at 3:53 PM, ati2ud (< 20) wrote:

thanks for the follow up man.  So it looks like you can rollover or start a new IRA with a minimun of $4000 with one of there recommended trusts.  You have an initial $15 set up, a $60 annual IRA fee, and a $100 annual storage fee.  So you either have the IRS collectibles fee or the IRA/storage fee...  someone gets you no matter what

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#23) On June 03, 2009 at 3:53 PM, XMFSinchiruna (28.54) wrote:

ahobbs

"Do you have an opinion on TIPS?  If the dollar falls in value, would this be reflected in the CPI and the principal adjustment on TIPS?"

Do I ever! :) TIPS might be one notch more attractive than non-TIP Treasuries, but as dollar-denominated debt assets they remain among the worst investment vehicles I can fathom.

Let's start with the CPI, which is a complete and utter fabrication. The degree of disconnect between CPI and actual inflation is so immense as to render CPI useless as an inflation gauge. The government has a conflict of interest here, since it is in their best interest to keep inflation low, so from that perspective the changes made since the 1990s to their process for calculating CPI make perfect sense. Just the act of omitting energy and food from an inflation gauge should raise major red flags ... since these are major elements of an individual's cost of living.

If you'd like to explore this issue more, I recommend diving into John Williams' excellent site Shadow Government Statistics.  Williams is an accomplished economist and well-respected researcher who counts some very impressive clients among his service subscribers. For those unfamiliar with shadowstats, the site offers a great introduction to the topic of CPI numbers and more reliable processes for measuring real inflation even in the non-subscriber sections.

For example, as you can see in the above chart, the government presently reports a negative rate of inflation (about -1%), while the real rate of inflation is actually closer to 7%. Therefore, any TIPS holder would presently have to subtract 8% from nominal yields to determine the actual inflation-adjusted yield.

Until the Treasury announces that TIPS will be tied to Williams' alternate CPI, which will never happen, they remain just as toxic as the underlying currency.

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#24) On June 03, 2009 at 3:55 PM, jatt22 (39.95) wrote:

thanks for sharing ideas wth some fundamentals backing them up . + rec

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#25) On June 03, 2009 at 4:05 PM, XMFSinchiruna (28.54) wrote:

jatt22

Glad you're enjoying it. :)

ahobbs

Here's a good primer on CPI from shadowstats.

 

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#26) On June 03, 2009 at 4:06 PM, 100ozRound (30.42) wrote:

Jimmy2008

Check out interactivebrokers.com - they trade on several different foreign exchanges including Canada.  They have a minimum of $10,000 to open an account though...

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#27) On June 03, 2009 at 10:17 PM, Jimmy2008 (< 20) wrote:

Sinchi, 100ozRound and other friends,

Good news! My broker, scottrade, can assist us buying stocks listed in Toronto and Vancouver stock exchange. They charge $27 US for each trade (broker assisted). I will conduct some research as to what to buy. I know that many junior miners are listed in Vancouver. I tend to buy an junior miner index (miner, exploration) and hold it for a long time (to reduce trading costs).

I like scottrade for the low cost and fast trade.

 

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#28) On June 03, 2009 at 11:55 PM, XMFSinchiruna (28.54) wrote:

Jimmy2008

Thank you very much for this valuable information!!!

Great to know!

I have some ideas for starting points for further research if you're interested. :)

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#29) On June 04, 2009 at 12:38 AM, FleaBagger (32.74) wrote:

Jimmy -

Hi there! It's refreshing to see someone develop an investment thesis and jump in with both feet. I hope you're young, though. Every individual human is incapable of knowing everything he needs to know to make a perfect decision about what he ought to do in any significant matter, particularly investing. But if you think you're onto something, risk something going after it, especially if you're young. Risking something in pursuit of something better makes you a better person.

That said, I like the gold, silver, agro, and oil portfolio. I might be way dumber than Chris on the matter, but I would up ag and oil as percentages of the portfolio, if you know them and they're good companies, because food and energy are consumed and have the potential to go a lot higher, as well as being less vulnerable than gold and silver in the event of a magical recovery. That said, I see genuine economic recovery as highly unlikely in the next few years, and prolonged (more than 3 months) deflation as even less likely. 

Also, I know it's crazy to get involved in something I understand so poorly and that I suspect might be a ponzi scheme, but I am a big owner of TMV and puts on TMF. If the derivatives market collapses while I own those, I'll probably lose it all, but they look so tasty!

Go ahead, Chris, chastise me, but I just can't help myself!

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#30) On June 04, 2009 at 8:33 AM, Jimmy2008 (< 20) wrote:

Flea,

I fully agree with you. Energy and agriculture are very important. I bought lots of UNG yesterday and increased my exposure to the sectors to 30% (see #9 post on this blog). My PM holdings took a big hit yesterday but it is still up 60% on paper. I will take some profits in PM and add more ag/energy and junior/exploration stocks in energy/PM/base metal sectors. Both Sinchi and Marc faber recommended juniors and I trust their judgement.

I have read articles talking about peak in everything. High quality ores and large oil fields are difficult to find. According to financialsense, the next bubble is likely a commodity bubble. I am not afraid to jump in now as I don't see a bubble yet. Bubbles are not bad as long as we get in before it is formed.

Sinchi,

Please share you ideas on junior /exploration stocks with us. I respect a lot of what you say.

Thank you!

Keeping cash (especially USD and British Pound) seems safe but it is one of the most dangerous investments now. I don't see any reasons why people still buy CD and long bonds. I even don't want to touch corporate bonds as I am worried about USD devaluation and defaults. At this moment, I have about 30% of my holdings is in physical silver.

 

 

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#31) On June 04, 2009 at 1:29 PM, fndr489 (72.41) wrote:

TMFSinchiruna,

Thank you for your follow up to my question!  I did not even think about the tax consequences of holding the actual, physical asset ("small f" foolish, I now realize).  28% is a bummer indeed.  I do like your four tier approach, that seems very "big f" Foolish to me.

Again, thank you.  Great article.  Now to tell my mom not to sell my "collectible" comics at her next garage sale...

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#32) On January 06, 2010 at 1:56 PM, ttyljimbo (< 20) wrote:

I've been bulking up on silver bullion (some gold bars too) and have been using Scottsdale Silver for most of my purchases.  Fast shipping and super quality stuff.  This economy is getting interesting.

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#33) On May 12, 2010 at 6:01 PM, nafeponline (< 20) wrote:

This article really makes sense.  I mean, in 1971 the U.S. dollar was worth 1/35th of an ounce of gold. Today the dollar is only worth 1/1000th of an ounce (assuming a price of U.S. $1000 per ounce). Gold therefore stands alone as the only asset which can protect us from ruinous government actions and calamitous world events.

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