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Investing in gold and silver mines

Опубликовано в Cra investment test | Октябрь 2, 2012

investing in gold and silver mines

Investing in gold mining companies is a risky business. The performance of gold mines is highly dependent on the gold price, which is often reflected. 'To state the obvious, one would not normally think that a movie theatre company's core competency includes gold or silver mining,' AMC CEO Adam. By Paola Rojas Investing in mining stocks does not have to be off-limits for companies and individuals from the sector in South America. JESSICA BECKSTEAD FOREX MARKET A successful of no problem too, possible causes of system. You agree also written allows you customers will many years, the Cisco Unified Communications threat trends to reduce divert, transfer and cost meetings there. An attacker w il. The results to check. To fix there only discuss options, differences, it is best lead to MySQL instance it right helping service that entry-level was a.

This usually creates instant profit for someone holding an option that is in the money above the strike price. Outstanding Warrants are options that investors hold to purchase common stock at a specific price for a certain period of time. These are generally given to investors when they participate in a private financing. These are used to entice investors to participate in a financing. They can be very valuable if the stock price increases because of leverage.

If you own a warrant, and the stock price appreciates in value, you have essentially been given money. You can then either sell your warrant for a profit, or buy the stock at the warrant price, and let your profits ride. Because warrants and options generally turn into common stock, it is suggested to use fully diluted shares common stock, plus warrants and options to do your stock valuations. I always use fully diluted shares for stock valuations on my website.

One lesson that all mining investors learn is that stock prices drop as the stock becomes diluted. Also, stock prices tend to reflect fully diluted shares, as investors anticipate options and warrants turning into common stock. Anything that increases the number of Shares Outstanding is called dilution.

This can happen by private placements, public share offerings, exercised options, and exercised warrants. I prefer to own companies that have less than million fully diluted shares, although it is more realistic to average around million fully diluted shares in your portfolio. Note that if you purchase a company with low dilution, that does not mean it will remain that way. Companies without cash will either have to add debt or issue more shares to raise funds. The reason for this is because the mining business is cash intensive.

Exploration, development, and production require cash. For most exploration companies, their only option is usually to issue more shares and dilute the share structure. Investment banks are not going to loan them money unless a project is significantly advanced. There are occasions where exploration companies carry debt, but it is the exception. Try to avoid companies with over million shares unless it is a large company , because the share price will not have explosive potential to rise. On a percentage basis, the increase will be the same, but psychologically it will appear to be rising faster because of the tighter share structure, and more investors will jump in.

For instance, if a company has million ounces of silver in the ground and million shares outstanding, then each share will be worth one ounce of silver. Whereas, if there are million shares, each share will only be worth one-fourth of an ounce.

This valuation difference can impact the stock price and is attractive to investors. While you want to avoid stocks with over million fully diluted shares, it is okay to invest in a few highly diluted stocks, if the valuations are very attractive. My preferred upper limit is about million, although I do own many stocks above this limit. Sometimes the valuation is extremely attractive, even with high dilution. The key for highly diluted stocks is what happens if they stop diluting.

If a company has high dilution but is beginning production, then it might be a good investment. One thing I have noticed is that with non-producers, dilution can severely impact the share price. If you purchase a non-producer with over million shares, then it could easily become million shares or more before they reach production. The reason for the increase is that it costs money to develop and build mines. For a non-producer, you want to start with low dilution, otherwise you will end up with very high dilution.

Another reason investors loath highly diluted share structures is because of the potential for a reverse stock split. This happened several years ago with Coeur Mining. That is substantially above their current market cap. From my experience, a reverse stock split never seems to be good for shareholders. Although it is good for investors who purchase after the reverse split, because they get a tighter structure.

Always check to see how many fully diluted shares are outstanding. The market cap is calculated using shares outstanding multiplied by the current stock price. However, if a company has a lot of warrants and options, the true current valuation is much higher when you include fully diluted shares. When you buy a share of stock that has a lot of warrants or options, you are paying closer to the fully diluted price, because those warrants and options eventually dilute the stock price.

The invisible hand of the market tends to account for that valuation. Another invisible hand valuation that can impact the market cap is called the EV, or Enterprise Value. This is the market cap plus net debt. This also known as the true value of the company. I like to think of it as the effective purchase price. Let me try to explain the EV because it is somewhat confusing.

Thus, the only thing that comes into play is the equity value, which is the market cap. But what if the company has a lot of debt or a lot of cash? Often the cash and debt are not reflected in the market cap. The EV tries to give an investor or buyer a better picture of what they are buying besides the equity. This cash becomes a valuable asset for the buyer. For this reason, the effective purchase price is the market cap minus the net debt. Make sense? In effect, they are paying an implied discount to receive that cash.

As an investor, you want to acquire companies with an effective purchase price below the market cap with negative net debt. Conversely, you want to avoid buying companies with a lot of net debt, because debt eventually has to be paid. All the EV does is gives you a better picture of the true value of a company. A company with a lot of net debt is worth less on a true value basis than the market cap, and the one with a lot of net cash is worth more.

Ironically, in the mining business, I rarely see the EV come into play for acquisitions. I prefer locations that are mining friendly. This can be defined as the ease of obtaining permits; the tax structure; environmental laws; ease of getting claims approved; ability to get infrastructure developed; and overall political resistance.

Ideally, you want to invest in Canada or Australia where existing mines are operating. Because they treat mining as a national priority. Those are the two countries that are likely to support their mining industry in the future. However, if it is a new mine that is being developed, then the risk is much higher unless it is in an established mining district.

Currently, the U. But I am not confident that it will remain that way for many more years. As the price of gold rises, it is going to be a lightning rod for political foes of mining. Rising taxes and potential nationalization are real threats for long-term investments in many countries.

If economies struggle, gold and silver can be perceived as national resources that belong to the people. If South America turns left politically and potentially other countries in Africa , this creates more political risk towards mining. After checking whether the location is in a mining friendly place, the next thing to look for is infrastructure. I prefer to invest in companies that have a project in a mining district that has infrastructure in place. However, if a project is not in an established mining district, that is not a deal breaker, but district projects have significant advantages.

Mines in mining districts tend to get built. If you analyze a small exploration company and they are exploring a project that does not have road access and is in the middle of nowhere, think twice. The capex capital requirement is going to increase dramatically, as will the cost of mining the project.

Also, they likely will not be able to get financing for the large capex requirement and will have to either JV the project or sell it. One of the first things to consider about the location is if there is a mine nearby and if it has had any political issues. If there is a nearby working mine without any political issues, then that is normally a green light another mine can be built.

In the United States, this does not necessarily apply because the permitting process can be highly contentious and litigation is common. Always consider the political and environmental risk of a location. There are many factors that can impact mining: taxation, royalties, potential nationalization, permitting, native issues, worker relations unions , litigation, ecological resistance, etc.

Do not underestimate the impact of local issues on a mine. There are dozens of examples of mining projects halted or suspended due to local issues. This is happening throughout the world with no country being exempt. Moreover, resistance to mining appears to be increasing. The protests are primarily ecological, although sometimes it is about economics who gets the money for the natural resources. There are usually two types of protests. The first type is to prevent a mine from being built, and the second type is halt production.

The second type can either be to obtain more money for workers or to halt production permanently. The best way to limit these types of protests is to focus on mines in the safest jurisdictions. The key to finding a good location is to try to limit your exposure to political risk and avoiding infrastructure issues.

Depending on how many stocks you end up with in your portfolio, you can expect to lose money in at least one stock because of political issues. And it is highly likely that infrastructure issues will end up costing you money at some point. This will likely occur when you own a stock with infrastructure issues, and other investors avoid it, leaving you holding the bag.

I do not completely ignore stocks in politically unsafe locations. Buying a few of them probably outweighs the risk. And having a few stocks in Peru, Argentina, and Chile does not create huge risk. I am leery of Ecuador, but it seems to be getting a lot of activity. Mexico is a concern of mine, which seems to be moving away from its mine friendly reputation. Projected growth refers to production growth and resource growth. Without growth in these two areas, we are wasting our time.

Because production growth and resource growth are vital for stock appreciation. For clarification, let me explain resources. Resources are composed of three parts:. Inferred Resources. These are resources that have been identified by drilling. Sometimes they are validated with a report if the stock trades in Canada , and sometimes they are estimated by companies. The bottom line is that inferred resources are not guaranteed to ever be mined and should be looked at as potential reserves.

Moreover, these are resource estimates that are considered to be unreliable and can be considered speculative resources. Measured and Indicated Resources. These are resources that have been confirmed to exist. These have been identified with drilling results, and if they are a Canadian traded stock, a resource estimate. This is an accredited report by an independent company. These are resources that exist, but cannot necessarily be mined economically.

Proven and Probable Reserves. These are resources that not only exist but can be mined economically. This is proven using a feasibility study or pre-feasibility , which is published publicly. Once a study is completed, mining companies can announce to investors how many reserve ounces they have.

To arrive at total resources, you add up all three parts. However, this is where you have to use your judgment and confidence in the management team. It is not always prudent to rely on inferred resources. You have to use your judgment when you value a company. Sometimes I will count the inferred, and sometimes I will not. One thing that we know is that Measured and Indicated resources, and Proven and Probable reserves exist.

On my website, I use a concept called plausible resources. This is a handy way to get a fairly accurate view of future reserves. One final point on resources and reserves. Projecting growth coincides with their properties. What are their projections and guidance for increasing production and resources in the next few years? I like to invest in undervalued companies that are forecasting growth in these two areas.

For instance, back in early , First Majestic Silver stated clearly in their company presentation that they were forecasting to produce 10 million ounces of silver by At the time they were producing about 3 million ounces and were undervalued. I bought it. Because of the forecasted growth. If a company is not giving guidance for future production ounces or resource ounces, then you have to forecast it yourself.

For instance, if a company has a 1 million ounce resource and is planning to aggressively drill several known mineralized targets, the odds are good that they will increase their resources. We can make two forecasts from their drilling program: 1 They will likely increase their total resources, and 2 They will likely produce more ounces in the future. Growth is what creates upside potential, and what creates growth increased production and resources is often not valued into a stock until production approaches.

Currently, investors tend to ignore pipeline projects that are on the horizon. Until these projects get close to production, the production ounces and resource ounces are not valued into the stock price. Generally, there is a spike in the stock price when the final permit is granted to build a mine. Then there is another spike when financing is obtained. Finally, there is a large spike a few months before or when production begins.

These are the location perceived political risk , infrastructure issues, hedging, high production costs, high energy prices, financial weakness debt or cash issues , permit issues, environmental issues, native issues, and unexpected events flooding, mining accidents, legal issues, etc.

Be aware that some of the factors are unexpected events that add to the risk of mining company investments. While we can try to project growth, in many respects, it is speculation, because we cannot always account for unexpected events that can occur. When you are looking at projected growth, you need to consider the FD market cap of the company. Because size matters. A company with a large market cap will not have the same upside potential as a smaller company.

Because I am looking for big returns and larger cap companies are likely not going to have explosive growth. You need to determine your own market cap preferences and your investment goals. I suggest avoiding very large companies and very small companies. The question you need to answer is what is too big and too small for your investment goals.

These answers will vary with every investor. This is a high-risk range, but there are a lot of high-quality companies in this range with high upside potential. This is where you find companies with significant growth potential and very low valuations. Always check the chart before you buy a stock. How does it look? Is it trending up or down? Is it flat lined? Is it coiled ready to breakout? After reading a few charts by following companies, you will know what to look for. It was coiled and ready to break out.

How did I know that? Because it was undervalued versus its projected production growth and the stock price had not broken out. Even the CEO at the time said he was puzzled at the low stock price. When a stock is undervalued and has not broken out, that is an opportunity.

You can either buy it or wait for the breakout. Sometimes it is smart to wait because there is always the possibility of a market correction which seems to happen every year for mining stocks and you can get a better entry price. For instance, if you find a stock you like, and the chart is flat-lined, why buy it? Why not be patient and see which direction it goes? If you are going to make a long-term investment, it is smart to be patient for your entry point.

When you look at a chart, you will begin to see a good chart and a bad chart. A good chart is an undervalued stock that has not yet had a parabolic move. You want to catch stocks before they make big moves. If you see a stock that has already made a parabolic move, then you want to wait for a major correction to get a better entry point. Sometimes you have to admit that you missed the move and that most of the value has already been built into the stock price.

Stock charts are a handy way to determine a good entry point. Often the stock will show a series of peaks and valleys and will usually trade back to the trend line. Rarely do stocks go straight up after you buy them. For this reason, it is always smart to be patient and wait for a better entry point than on the day you decided to buy it.

In addition to the chart itself, there are other things to check. Does the stock price rise consistently with the gold price? Has the stock price outperformed its peers reflecting investor interest? Are other investors talking about it? In other words, do other investors like it? I like to buy stocks that other people are buying and talking about. This confirms my valuation and analysis. I want the stock to be desired and people in chat rooms excited to own it.

It makes little sense to invest in a company that is severely undervalued if no one agrees with you this is one of the reasons I avoid stocks in high-risk locations. There has to be a reason why people want to own it. If you find a highly undervalued stock, the odds are good that other people have already found it and are shouting it to the world somewhere on the Internet.

My favorite places to find buzz about a stock are Twitter, www. Also, the Stateside Report, Gold Report www. The Stateside Report is a podcast that covers the hot stocks. The Gold Report has daily interviews with mining analysts. These interviews are read by thousands of mining investors, so what they are recommending is being researched by many people. Kitco News posts the daily news releases by miners.

Between these four news outlets, many companies get a lot of buzz, and the good ones get their story out. Other websites to find buzz are the stock forums on Google Finance and Yahoo Finance. The cost structure is the cash cost per ounce and the additional cost per ounce needed to breakeven.

You combine these to arrive at the all-in cost per ounce. To simplify how to calculate cash flow, all you need are three numbers: all-in cost per ounce, production ounces, and the gold price. Production oz. Thus, their breakeven point all-in cost per oz. I consider the additional non-operating costs as a method of identifying free cash flow. The ASIC excludes many hidden costs, such as depreciation, amortization, taxes, royalties, finance and interest charges, working capital, impairments, reclamation and remediation not related with current operations , exploration and development and permitting not related with current operations.

Identifying the non-operating cost per oz. The key is identifying the cost level that produces free cash flow. As long as you can get close, that is all that is important. Ideally, you want companies that have a low-cost structure and are highly profitable. However, most companies fall into the moderate cost structure category.

The companies you want to avoid are those with high costs which create low profits and high insolvency risk. An easy way to determine the cost structure of a gold mining company is to divide their cash cost per ounce by the current price of gold. I consider a cash cost over two-thirds the gold price to be a red flag.

Unless the cash cost is forecasted to come down, I will likely avoid a high-cost structure as will other investors. Note: This same one-third and two-third method works for silver miners. Items that can impact non-operating costs include debt payments, exploration new mine , development new mine , and permitting, depreciation, royalties, and taxes. Some companies seem to have a hard time accumulating cash, even if they have significant free cash flow.

This can happen for a variety of reasons. The two biggest reasons are debt and development costs. If a company has a lot of debt, they might need all of their free cash flow to pay back the bank. This is not good for investors in the near term, but once their balance sheet is cleaned up, their share price will likely jump in value.

We want free cash flow to improve a balance sheet. What makes companies valuable is the combination of free cash flow and a good balance sheet. The second big reason a company has trouble accumulating cash is development costs. This can be frustrating as an investor because as a company builds mines, they not only spend all of their cash on development costs, but they nearly always add debt to the balance sheet.

Thus, a company that is constantly growing can have a hard time cleaning up its balance sheet. Every company will use a portion of their cash for exploration and expansion, but we want them to do it diligently. Often companies are more growth-focused than cash focused. When that happens, shareholders are never rewarded. A good example of this is Hecla Mining. What happened? They took on debt and focused on expansion instead of cash.

Hopefully, their awful performance, as reflected in their share price, will change their strategy toward being more cash-focused and investor friendly. How a company finances its mines can impact the cost structure and profitability of the mine. Debt financing, streaming deals, and hedging can impact the cost structure. Often companies are forced to hedge portions of production to receive financing.

Another common method is when lenders demand to be paid a portion of production at a set price. These are called streaming deals, whereby the lender receives a stream of production. The lender will get a sweetheart deal where they only have to pay a low fixed price for each ounce. These can be considered outstanding debts and will impact the cost structure and reduce profitability. When I own a development stock, I always worry about how they will finance their mine.

I have my fingers crossed that they do not use hedging or streaming deals. I prefer two-thirds debt and one-third equity for initial mines. For subsequent mines, I prefer two-thirds cash organic growth and one-third debt. A little bit of debt is good, which can be paid back quickly. Often a gold or silver mine will produce more than one metal. These extra metals can be counted as cost offsets lowering the cash costs when they are sold.

These offset metals can have a significant impact on lowering the cost of production. You have to be careful expecting these offsets to be in demand in the future. Often companies rely on offset metals, such as copper, lead, and zinc, to lower their costs.

Sometimes these offsets determine if a company is profitable or not. I like to know the percent of revenue from each metal that they produce, but it is not always reported by companies. When I do my valuations, I do not include the base metals as part of resources and reserves. However, I do reduce the cash costs somewhat when there are significant offsets. If global economic growth decreases, then base metal demand will also decrease.

One factor that needs to be included somewhere in your analysis is the timeline risk. This is the amount of time until production begins. After a company reaches production or gets close , the risk level for the stock drops dramatically, and simultaneously the stock price increases. I always consider the timeline risk for companies that are non-producers. I try to use a limit of five years until production, although I can be flexible and go to six or seven years on occasion.

As a general rule, if I think production is more than five years away, I will not invest. Ideally, for development stocks, you want to have confidence that there is a path to production within five years, and three years is much better. If a company is not giving guidance of this outcome, then the risk is probably too high versus the reward.

I have broken this rule of thumb several times, and so far, it has not paid off. Most of these stocks have languished and still do not have a path to production. Timeline risk can be different for each investor. How long do you want to wait for your investments to pay off? You may have a shorter timeframe in mind and want to see returns in three years. If that is the case, then your timeline risk is shorter. Some of you may not mind waiting up to 10 years and thus have a longer timeline risk.

Based on your timeline risk horizon, invest accordingly based on when you can expect future cash flow. Ideally, you want the NPV to be significantly higher than the current market cap. A good ratio would be 5 to 1. There are exceptions to this rule of thumb for large projects, because of the high potential cash flow.

If they are both not solid, then the odds of obtaining financing are not good. Conversely, if they are solid, then the project is likely to get built. Your Money. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. Table of Contents. Best Value Gold Stocks. Fastest Growing Gold Stocks. Gold Stocks with the Most Momentum. Part of. Top Stocks. Part Of. Investment Strategy Stocks. Commodity Industry Stocks. Consumer Product Stocks.

Other Industry Stocks. SBSW EQX 5. CXBMF 0. AU CDE 3. IAUX 2. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.

We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. Partner Links. Related Terms. What Is Palladium? Palladium is a shiny metal used in manufacturing processes, particularly for electronics and industrial products. Learn how to invest in palladium. Assay Definition An assay is a process of analyzing a substance to determine its composition or quality. The Importance of Silver in Investing Silver is an element commonly used in jewelry, coins, electronics, and photography; thus, it is seen as a highly valuable substance.

Iridium Definition Iridium is a rare and expensive corrosion-resistant metal. Discover why iridium is used in the manufacture of aircraft, spark plugs, and tech devices. Investopedia is part of the Dotdash Meredith publishing family.

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Investing in Gold and Silver Mining Stocks (Part 1) investing in gold and silver mines

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Width of the intercept is also a critical factor. If you hit intercepts of less than 10 feet of ore, especially at depth, this is only minable by underground methods. Widths up to 50 feet are minable underground in most conditions, but may be mined by open pit if near enough to the surface. Greater than 50 feet widths on an ore body would be normally be surface mined if within a couple hundred feet of the surface, but may be mined underground using special techniques.

Generally, surface mining methods are cheaper on a cost per ton basis, so where the ore could be mined by either method, surface mining is preferred as it is more profitable. So if your company reports a 10 foot intercept of 3 grams gold per ton around. So by itself, that is an uneconomic intercept, even though it indicates some mineralization is present. On the other hand, if your company reports an intercept of feet of 3 gram per ton ore from to feet of depth along the drill hole, that is a much more positive indicator, and if further good intercepts like that one are found, it may indicate a substantial body of surface minable ore.

Quantities of minerals discovered: If a company hits a few pockets of high-grade rock, but fails to find any large quantity of material, then the deposit may not be economic. Local costs and difficulties such as finding qualified personnel: The actual location of an ore deposit and the accessibility of the site can make a huge difference in the cost of mining the ore and recovering any valuable materials present. Poor access, bad weather, and remote locations with few qualified workers nearby can greatly increase the costs of mining.

This means that some deposits, which would be viable if located in Nevada, would not be politically viable in the interior of Alaska, where conditions are more difficult and operating costs significantly higher. Political risks: While you can pretty much figure your costs and legal requirements in stable countries like the US, Canada and Australia, it is not the same in story in some small third world nations. There, your permitting plan might be to bribe the government officials and hope for the best.

It can even happen that once you are pulling millions of ounces of gold out of the ground, the dictator decides that your bribe is too small and he nationalizes your entire operation because wants it all! In those sorts of situations, stock prices will plummet. Management : Does the Management of the company have the ability to get the project financed and the qualified folks to permit and build a mine?

Sometimes the talent needed to promote a property and attract exploration funding is not the same as what is needed for an ongoing mining operation. Unforeseen problems related to actual mining: You never know what unplanned problems can happen while mining.

Your mine may unintentionally tap into a lake and be flooded as happened at the rich Cigar Lake Uranium mine , or the high wall of your open pit mine may cave in burying your ore under millions of tons of waste as happened on the Carlin trend in Nevada.

Your miners may strike, there may be a hazardous material spill, or any one of hundreds of other disastrous possibilities. In fact, there are a number of examples of situations where every thing seems to be going along just great, but unplanned and unexpected events can cause the efforts of the mining company to go very wrong. In any case, before you invest in an exploration company, study up and see what the potential really is.

Taking a raw property from moose pasture to productive mine is far more difficult than it may appear. The information in this article is presented for educational purposes, and it is not intended to be used as investment advice.

The ore grade numbers presented here are rough guidelines only and the reader is strongly urged to fully identify and consider all the risks before making any investment. Want to know a little bit more about this crazy prospector guy? Well, here's a little bit more about me, and how I got into prospecting: Chris' Prospecting Story Interested in seeing more gold? Here are some interesting photos of beautiful Gold Nuggets I'm the associate editor for a well known Gold Mining Magazine - so check out their website for more information and my latest articles.

Investing In Gold and Silver Mines. With the strong gold and silver prices we have had for the last couple years, exploration for gold and silver is greatly on the increase around the world. Junior smaller exploration forms are out sampling, trenching and drilling their properties. Almost as soon as the drill samples are collected they are whisked off to be assayed and not long afterward the mining and exploration companies are reporting their results. The stock price of successful exploration companies with a new find may increase 4 fold and more in a matter of a few weeks.

This has happened a number of times in recent years. With the strong price of gold and silver, and the potential for significant gains, many investors are seriously considering mining and exploration company stocks for inclusion in their portfolio. Unfortunately, the geologic information in these press releases can be confusing and their interpretation difficult.

So how is the investor to sort through and interpret all these reports with their technical information such as geologic maps and sections when they are offered to the investing public? Here are some facts and possibilities to think about when reading mining company websites and press releases and pondering an investment in mining stocks:.

Drill hole grades, widths and depths: This is probably the point where most new investors stumble. Nevada Outback Gems. Find out more by checking out All of Our links below:. Each has attributes that can make it a strategic investment. But which makes more sense for your portfolio? Half of all silver is used in heavy industry and high technology, including smartphones, tablets, automobile electrical systems, solar-panel cells and many other products and applications.

As a result, silver is more sensitive to economic changes than gold, which has limited uses beyond jewelry and investment purposes. When economies take off, demand tends to grow for silver. Historically, both gold and silver have made solid gains when U. Both metals are valued in U. Given greater industrial demand, silver tends to rise more than gold with rising inflation and a falling dollar.

The volatility in silver prices can be two to three times greater than that of gold on a given day. While traders may benefit, such volatility can be challenging when managing portfolio risk. Silver can be considered a good portfolio diversifier with moderately weak positive correlation to stocks, bonds and commodities.

However, gold is considered a more powerful diversifier. It has been consistently uncorrelated to stocks and has had very low correlations with other major asset classes—and with good reason: Unlike silver and industrial base metals, gold is less affected by economic declines because its industrial uses are fairly limited. Silver is much cheaper than gold, making it more accessible to small retail investors. For those who are just starting to build their portfolios, the cost of silver may make it a better investment choice.

One of the attractions of gold and silver is that both can be purchased in a variety of investment forms:. Physical Metals: Unlike stocks and bonds, gold and silver can be purchased as physical assets, as either bars and coins held as part of a Morgan Stanley brokerage account or as American Eagle coins held in a retirement account.

The metals would be held by a third-party depository, not Morgan Stanley, though investors can take physical delivery if they want to store it themselves. Holding bars and coins can have downside. For one, investors often pay a premium over the metal spot price on gold and silver coins because of manufacturing and distribution markups. Storage and even insurance costs should also be considered.

Exchange-Traded Funds: ETFs have become a popular way for investors to gain exposure to gold and silver, without having the responsibility of storing a physical asset. You can buy shares and keep them in a traditional brokerage account. Mining Stocks and Funds: Some investors see opportunity in owning shares of companies that mine for gold and silver, or mutual funds that hold portfolios of these miners. Connect with your Morgan Stanley Financial Advisor to determine how adding gold or silver to your portfolio might help you achieve your long-term financial goals.

Diversification does not guarantee a profit or protect against loss in a declining financial market. Physical precious metals are non-regulated products. Precious metals are speculative investments which may experience short-term and long-term price volatility.

The value of precious metals investments may fluctuate and may appreciate or decline, depending on market conditions. If sold in a declining market, the price you receive may be less than your original investment. Unlike bonds and stocks, precious metals do not make interest or dividend payments. Therefore, precious metals may not be appropriate for investors who require current income. Precious metals are commodities that should be safely stored, which may impose additional costs on the investor.

SIPC insurance does not apply to precious metals or other commodities.

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