Is Now the Time to Buy Gold Stocks?

I am generally conservative with my investment strategy.  I am probably even more conservative in what I recommend.  Today, I am going against this trend and recommending investments that are among the most risky.

I don't consider gold to be a risky investment, at least when you are using it as a complement to your portfolio.  I am a big advocate of the permanent portfolio, as described in Harry Browne's book called Fail-Safe Investing.  Gold makes up a good portion of the portfolio (25%), yet it is not that risky when put in context of the overall strategy.  It has its role as a hedge against dollar weakness and inflation.  There may be times that gold doesn't do well, but then the rest of the portfolio is likely to be up.

Gold stocks on the other hand are very risky.  There are so many more risks than just investing in the metal itself.  You are usually buying leverage.  You have the risk of bad management in a company.  You have the risk of a big mine disaster that the company owns.  You have the risk of governments confiscating mines or just making it extremely difficult for companies to do business.

That is why I am not recommending any one company.  I recommend a mutual fund or exchange traded fund (ETF).  There are a lot to choose from.  Some examples are:


You should consider the tax consequences of each one.

There are a lot of choices out there, but it is key to diversify, at least in terms of companies.  You just want to bet on the gold mining business in general and not on any one particular company.

I could be completely wrong, but I think now is as good a time as any to speculate on one or more of these funds.

If someone told me 5 years ago that the adjusted monetary base would more than triple in less than 5 years, I would seriously have thought they were crazy.  If someone told me that, coupled with the fact that gold stocks would perform poorly, I would have thought it to be almost impossible.  But apparently it is possible.  I also wouldn't have thought that the banks would have piled up massive excess reserves.

Gold stocks have done terribly in the last few years.  There seems to be little interest in them.  Gold, the actual metal, has been a better investment.

But isn't this really the prime opportunity?  Most people don't get rich by following the crowd.  Investors make big money the same way that entrepreneurs make big money.  They see opportunities that most others don't see.  And more importantly, they act on them.  They don't let public opinion sway them from taking action and taking advantage of a potential opportunity.

I am still a conservative investor overall and I want you to be one too.  I recommend that at least half of your investments be in the permanent portfolio, or something similar.  But if you are going to take a chance on something, gold stocks are a great place to look right now.  They are high risk, but the rewards could also be great.  The Fed is going to continue to create approximately $85 billion in new money every single month, at least for the foreseeable future.  We could easily be in the midst of an artificial mini-boom.  If gold stocks start to get hot, you will regret it if you miss the ride.  The gains could be big.

I recommend that you keep gold stocks at less than 10% of your overall portfolio, and preferably at 5%.  If I am wrong, then it will limit the losses.  If I am right though, you are going to love the gains.