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I added a teeny, tiny back on DWGOX, which I'd been out of. Very, very small amount though, and while I am positive on metals, I am undecided if I want to continue adding back to the miners.
For me, a main focus is attractive hard assets - that can be oil pipelines, grain elevators or even prime real estate in space-constrained major cities.
I just see it as an oversold sector that has some upward pressures from money printing, global growth, and potential ebb of interest rates (inflation). My strategy is to diversifying out some profits from other parts of my portfolio into underperforming real assets...seem reasonable to me.
bee - Awesome quote from Twain - a classic which might be applied to many other areas of human endeavor. Gold??? Appears to be rallying this morning on news you may soon enter the market. However, the stuff is even harder to predict (or understand) than the stock market. (Only Rono knows:-)
I too have always been attracted to this area. Mine it, build it, or farm it - the only ways to produce, as everything else is just moving money around, isn't it?
Personally, I have a weak-spot for Vanguard Precious Metals and Mining VGPMX. Ditto for Vanguard Energy VGENX. Both a bit broader, more industry focused, than say a pure gold or speculation fund. Low Vanguard fees.
I scanned for more established, broader (than gold-focused) mining funds with no-load similar to USAA Precious Metals and Minerals. USAGX remains top of heap for the last ten years, per M* performance below, and it managed to temper its draw-down in 2008.
More recently, however, Scott's suggestion Dynamic Gold & Precious Metals I DWGOX has been top performer the last three years:
Here are stats on some of the better life-time risk adjusted performers of the group, oldest first:
It's a volatile bunch, of course. Interesting that only the younger DWGOX has beaten SP500 over life-time. And, only it and VGPMX, the largest, generate yield - healthy at that.
Despite large swings, the group as a whole was ultimately horizontal in the 15 year stretch from 1987 to 2002, then it went crazy until 2008 when, like the rest of the market, it suffered steep losses.
Here's a look-back at annual returns over last sixteen calendar years:
And here's a look-back at the wild life-time of USAGX:
USAGX has peaked twice in the last five years. It is down about 37% from its all-time peak in 2011 and down 5% from its penultimate peak in early 2008, as depicted below:
Catch too points-out the group as a whole appears to be over-sold. So, I'd say you are right to be considering PM Miners again. Thanks bee for sharing.
DWGOX also leans heavily towards smaller names (and thus, is more volatile in either direction.) DWGOX also, as noted above, has offered a nice yield, although I think miners have done nothing to convince me that they are more than a trade, so yield is not really as much of a consideration.
If you want gold buy gold, not stocks. The mining stocks are subject to risks other than the gold. The management risk, financing risk, political and region risks, mining exploration and production risks etc. Credit quality of these companies are low and they need to borrow heavily to stay in business.
In old times prior to gold ETFs mining companies were the only game. Right now many mining stocks are leveraged plays in the stock market. They provide high beta exposure.
Reply to @Investor: "If you want gold buy gold, not stocks" is an excellent point that Rono preached over and over again on the old board. Regards, Ted
I wouldn't touch miners with a 10' toe. I used to hold TGLDX and USAGX before that. I think over the 5 years I owned these funds, I lost money. Just way too erratic for me at this point in my investment style.
Curious though Bee. Have you actually made money on these types of funds?
my vehicle of choice is CEF: physical gold and silver. volatile as the underlying metals suggest, but at least it is in my "real asset" bucket -- no confusion with equity beta.
Below is the primer I wrote some years back about investing in precious metals. There are more ETF selections today but otherwise, it's pretty current. As a disclaimer, I own CEF, SIL, GDXJ in a deferred account, TGLDX taxable. PRPFX in everything.
Investing in Precious Metals – a primer
First of all, what’s an investment and what’s speculation. From my perspective, I consider a small holding of gold (more specifically precious metals) as an investment. It’s what I consider a ‘core’ holding. By small, I mean 3-5%. More than this is speculation and while speculation is fine, you need to be certain that is your intent.
I consider a small holding of precious metals as a core investment for several reasons. It serves, in many cases, as a portfolio diversifier; it is well known as a hedge against inflation; and, it’s also the number one investment in case of ‘black swan’ or Y2K type events such as war, terrorist attacks, and in general outsized uncertainty. Lastly, in recent years it’s been moving opposite the U.S. dollar. To the extent you feel the dollar will continue to drop relative to other currencies and ‘real stuff’ largely due to the twin deficits, but also because our trading partners are so $ flush, they’re starting to seek alternative investments, you will want to own some.
As for speculation, that’s a subject of personal taste and investing tactics. Some approach this from a fundamental perspective, while some from a technical perspective. I’m bullish for the longer term on precious metals for both reasons. Fundamentally, most bull markets in the natural resources (including precious metals) last for years. This is because of the nature of the beast. If the price of gold goes up, the lag time before new supplies can come to market is measured in years. It’s not like automobiles, where they can add another shift and produce more next week. With mining, you have to explore, discover, test, build refining plants, obtain all your permits, and then ship the product to market. This is true for all extractive commodities. Add to this the twin deficits and excessive amount of currency being the precursor of inflation. Further add that our trading partners hold so many dollars that they’re starting to look for alternative investments. From a fundamental perspective, these all point towards a long term bull market in the precious metals.
From a technical perspective, the current bull market began in 2002 and since then the gold index has not dipped below its 200 day moving average.
There are many ways to invest in gold – mutual funds, ETF’s, individual mining stocks, futures and the actual bullion itself.
Mutual funds that invest in the precious metals include natural resource funds, precious metals funds and some types of ‘defensive’ funds such as hard currency or Permanent Portfolio (PRPFX) type funds. With each of these funds, you need to do your research and determine exactly what they own. The easiest place is Morningstar using their Portfolio selection and Top 25 Holdings choice. Most mutual funds investing in the precious metals do so by owning shares of mining companies, although some own a little bullion. There are exceptions, such as the defense funds above that invest mostly in bullion.
Probably the least risky way to invest in precious metals is with a good broad based natural resource fund. These funds invest in energy, base metals, timber, and among other things, precious metals. A couple of examples are Price New Era PRNEX and US Global PSPFX.
Then there are precious metals mutual funds. With these there are pure play gold funds and true precious metals funds. The former only invest in gold mining stocks, while the latter also invest in silver, platinum, palladium, copper, etc. In all honesty, the vast majority of funds in this sector invest in all of the precious metals to a greater or lesser degree. First Eagle FEGIX is the only pure play gold fund I found while in the precious metals category, there are dozens. Examples include Vanguard VGPMX, Midas MIDSX, US Global UNWPX, Rydex RYPMX, Tocqueville TGLDX, etc.
In recent years, there has been the onset of ETF’s, or Exchange Traded Funds. These are sort of like mutual funds but trade like stocks. There have been some introduced that invest in bullion. These started with gold and then silver, but now cover platinum and palladium, mining stocks, junior miners, etc. There are a few dozen variations on a theme for those interested. Here’s a listing I found that has most of them: http://etf.stock-encyclopedia.com/category/precious-metals-etfs.html
A word of warning: Bullion ETF's have been determined by the IRS to be ‘collectibles’ and as such their capital gains are taxed at 28%. This is unlike mutual or closed end funds which are taxed at 15% for Long Term Capital Gains. This means you want to own a bullion ETF tax deferred account and NOT in a taxable account.
One last fund that needs to be mentioned but is in an odd category is the Central Fund of Canada CEF. It’s a PFIC for tax purposes and contains gold and silver bullion at about a 55/45 split. Because of its tax status, it’s a possible bullion play for a taxable account. You’ll want to use TurboTax or some other tax software.
Mining stocks provide the most leverage but are tied to the overall equity market. Bullion and mining stocks parallel each other over time, but often lag each other, sometimes by a significant amount. In this arena, the most leverage is with the smaller companies, but they also carry the most risk. With individual mining stocks, you can target a specific precious metal such as platinum or palladium and many actually mine more than one precious metal (e.g. Freeport-McMoran FCX is copper and gold).
Lastly, for those that wish to actually own some of the stuff, you can buy bullion. In large amounts, this is normally warehoused and insured and you don’t actually take possession. In smaller amounts, you can buy bullion in various forms and keep it in a safe deposit box or safe. There are ingots, coins, and don’t forget jewelry. For purposes of bullion you want to minimize any mark-up or premium while buying something that will be easy to sell at a later date. Same goes for bullion you buy in the form of jewelry – don’t buy designer brand names, just go the purest you can afford.
With gold, platinum and palladium, you can buy 1 ounce ingots or rounds and fractional sizes, such as1/2, 1/4, and 1/10 ounce sizes. With silver you can buy ingots and rounds in 1, 10 and 100 ounce sizes. The one caveat with buying plain bullion ingots or rounds is that they should be stamped and marked as to weight, fineness, etc. Indeed, you’re better off going with one of the major producers such as Engelhard, Johnson-Matthey, or Credit-Suisse as these are easier to sell. Also, as with most things, there are volume discounts meaning the more you buy at one time, the cheaper (closer to spot) they are on a per ounce basis.
You can also buy actual bullion coins issued by many countries. These include the U.S., Canada, Australia, South Africa and many others. Bullion coins will have a greater premium over the spot price, but because they are ‘official’, they can be much easier to sell. Bullion coins come in two basic varieties – Proof and Uncirculated. The former are special coins made for collectors and carry an even higher premium than uncirculated. They make great gifts, but are a terrible way to buy bullion. Bullion coins should be the uncirculated variety. Gold and platinum can be had in 1, 1/2, 1/4, and 1/10 ounce sizes while silver come in the 1 ounce ‘silver dollar’ size. In this category, the we have both the American Eagle and Buffalo series in the U.S. offering. While these have a higher premium than some of the other national offerings, they’re extremely fungible.
Lastly, you can buy ‘junk’ U.S. silver coins. These are dimes, quarters, and half dollars from 1964 or earlier when they were 90% silver. These are normally sold either circulated or uncirculated and by the ‘face value’ of the coins (e.g. $50, $100, $1000).
As for futures, they’re a subject beyond my understanding, and can be very complicated. I would suggest that this is NOT an arena for the novice.
Web sites of interest are:
www.gold-eagle.com - great commentary
www.kitco.com – current spot prices
www.apmex.com – good source for buying bullion in its various forms
Note that these are all sites that are bullish on gold and the precious metals so their commentary may be biased.
My rear view mirror experience with USAGX and VGPMX has been red hot and ice cold. Taking periodic profits are where I have enjoyed owning such investments. Investor made a good point that PM miners are leveraged plays. So, one has to ask themselves is it worth the risk. For me I have tried to watch its upward and downward movements so if and when I am ready to allocate a few "bits of silver" I have a sense of the downside risk. A dividend payment during a sideways price movement makes PM mining fund worthy of consideration..especially after a recent period of downward price movement...kind like a dividend paying bank stock.
USAGX offers little in the form of yield, but right now VGPMX has a 4.37% yield...this seems like a reasonable combination of present "income" and possble future "growth" .
Thanks rono, nice post. Me, I have hard time buying precious metals just because people want to own them, like gold in recent memory. I am more interested in their industrial use - to produce useful products.
No discussion of this subject is complete without reference to a book listed in the MFO "Books" section, found under the "Resources" heading. A couple of years ago Investor put me onto a really good book regarding the historical uses of gold, how it came to be used as an exchange medium for the "gold standard", and how sometimes that works and sometimes it doesn't.
Here's a direct link to Amazon, with MFO getting a small slice: The Power of Gold, by Peter Bernstein. The hard cover from Amazon is really well done- nice paper, and beautifully illustrated.
Great book, a nuanced narrative probably grating to hardcore bugs.
Between the American Civil War and World War I, gold became the near-universal standard, ''a symbol of sound practice and a badge of honor and decency,'' said Joseph Schumpeter, the great economist. The era was known for prosperity and financial stability. But Mr. Bernstein sides with Benjamin Disraeli, who said in 1895, ''Our gold standard is not the cause but the consequence of our prosperity.''
Iow it was Disraeli's view that the Golden Age of the gold standard wasn't what allowed for an extended period of relative peace and prosperity, lessening the cheating, currency wars, that spiral into conflicts but rather it was the extended period that allowed for the continuance of a gold standard.
10% in PMs mostly FSAGX VGPMX, added some this week.
Gross--
The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets.
REPEAT: THE COUNTDOWN BEGINS WHEN INVESTABLE ASSETS
POSE TOO MUCH RISK FOR TOO LITTLE RETURN.
Visible first signs for creditors would logically be 1) long-term bond yields too low relative to duration risk, 2) credit spreads too tight relative to default risk and 3) PE ratios too high relative to growth risks. Not immediately, but over time, credit is exchanged figuratively or sometimes literally for cash in a mattress or conversely for real assets (gold, diamonds) in a vault.
Comments
For me, a main focus is attractive hard assets - that can be oil pipelines, grain elevators or even prime real estate in space-constrained major cities.
As you both note...take it slow...take it small.
I just see it as an oversold sector that has some upward pressures from money printing, global growth, and potential ebb of interest rates (inflation). My strategy is to diversifying out some profits from other parts of my portfolio into underperforming real assets...seem reasonable to me.
I too have always been attracted to this area. Mine it, build it, or farm it - the only ways to produce, as everything else is just moving money around, isn't it?
Personally, I have a weak-spot for Vanguard Precious Metals and Mining VGPMX. Ditto for Vanguard Energy VGENX. Both a bit broader, more industry focused, than say a pure gold or speculation fund. Low Vanguard fees.
I scanned for more established, broader (than gold-focused) mining funds with no-load similar to USAA Precious Metals and Minerals. USAGX remains top of heap for the last ten years, per M* performance below, and it managed to temper its draw-down in 2008.
More recently, however, Scott's suggestion Dynamic Gold & Precious Metals I DWGOX has been top performer the last three years:
Here are stats on some of the better life-time risk adjusted performers of the group, oldest first:
It's a volatile bunch, of course. Interesting that only the younger DWGOX has beaten SP500 over life-time. And, only it and VGPMX, the largest, generate yield - healthy at that.
Despite large swings, the group as a whole was ultimately horizontal in the 15 year stretch from 1987 to 2002, then it went crazy until 2008 when, like the rest of the market, it suffered steep losses.
Here's a look-back at annual returns over last sixteen calendar years:
And here's a look-back at the wild life-time of USAGX:
USAGX has peaked twice in the last five years. It is down about 37% from its all-time peak in 2011 and down 5% from its penultimate peak in early 2008, as depicted below:
Catch too points-out the group as a whole appears to be over-sold. So, I'd say you are right to be considering PM Miners again. Thanks bee for sharing.
In old times prior to gold ETFs mining companies were the only game. Right now many mining stocks are leveraged plays in the stock market. They provide high beta exposure.
Regards,
Ted
Agreed, which is why I think they are more of a trade than any sort of long-term holding.
Curious though Bee. Have you actually made money on these types of funds?
Below is the primer I wrote some years back about investing in precious metals. There are more ETF selections today but otherwise, it's pretty current. As a disclaimer, I own CEF, SIL, GDXJ in a deferred account, TGLDX taxable. PRPFX in everything.
Investing in Precious Metals – a primer
First of all, what’s an investment and what’s speculation. From my perspective, I consider a small holding of gold (more specifically precious metals) as an investment. It’s what I consider a ‘core’ holding. By small, I mean 3-5%. More than this is speculation and while speculation is fine, you need to be certain that is your intent.
I consider a small holding of precious metals as a core investment for several reasons. It serves, in many cases, as a portfolio diversifier; it is well known as a hedge against inflation; and, it’s also the number one investment in case of ‘black swan’ or Y2K type events such as war, terrorist attacks, and in general outsized uncertainty. Lastly, in recent years it’s been moving opposite the U.S. dollar. To the extent you feel the dollar will continue to drop relative to other currencies and ‘real stuff’ largely due to the twin deficits, but also because our trading partners are so $ flush, they’re starting to seek alternative investments, you will want to own some.
As for speculation, that’s a subject of personal taste and investing tactics. Some approach this from a fundamental perspective, while some from a technical perspective. I’m bullish for the longer term on precious metals for both reasons. Fundamentally, most bull markets in the natural resources (including precious metals) last for years. This is because of the nature of the beast. If the price of gold goes up, the lag time before new supplies can come to market is measured in years. It’s not like automobiles, where they can add another shift and produce more next week. With mining, you have to explore, discover, test, build refining plants, obtain all your permits, and then ship the product to market. This is true for all extractive commodities. Add to this the twin deficits and excessive amount of currency being the precursor of inflation. Further add that our trading partners hold so many dollars that they’re starting to look for alternative investments. From a fundamental perspective, these all point towards a long term bull market in the precious metals.
From a technical perspective, the current bull market began in 2002 and since then the gold index has not dipped below its 200 day moving average.
There are many ways to invest in gold – mutual funds, ETF’s, individual mining stocks, futures and the actual bullion itself.
Mutual funds that invest in the precious metals include natural resource funds, precious metals funds and some types of ‘defensive’ funds such as hard currency or Permanent Portfolio (PRPFX) type funds. With each of these funds, you need to do your research and determine exactly what they own. The easiest place is Morningstar using their Portfolio selection and Top 25 Holdings choice. Most mutual funds investing in the precious metals do so by owning shares of mining companies, although some own a little bullion. There are exceptions, such as the defense funds above that invest mostly in bullion.
Probably the least risky way to invest in precious metals is with a good broad based natural resource fund. These funds invest in energy, base metals, timber, and among other things, precious metals. A couple of examples are Price New Era PRNEX and US Global PSPFX.
Then there are precious metals mutual funds. With these there are pure play gold funds and true precious metals funds. The former only invest in gold mining stocks, while the latter also invest in silver, platinum, palladium, copper, etc. In all honesty, the vast majority of funds in this sector invest in all of the precious metals to a greater or lesser degree. First Eagle FEGIX is the only pure play gold fund I found while in the precious metals category, there are dozens. Examples include Vanguard VGPMX, Midas MIDSX, US Global UNWPX, Rydex RYPMX, Tocqueville TGLDX, etc.
In recent years, there has been the onset of ETF’s, or Exchange Traded Funds. These are sort of like mutual funds but trade like stocks. There have been some introduced that invest in bullion. These started with gold and then silver, but now cover platinum and palladium, mining stocks, junior miners, etc. There are a few dozen variations on a theme for those interested. Here’s a listing I found that has most of them: http://etf.stock-encyclopedia.com/category/precious-metals-etfs.html
A word of warning: Bullion ETF's have been determined by the IRS to be ‘collectibles’ and as such their capital gains are taxed at 28%. This is unlike mutual or closed end funds which are taxed at 15% for Long Term Capital Gains. This means you want to own a bullion ETF tax deferred account and NOT in a taxable account.
One last fund that needs to be mentioned but is in an odd category is the Central Fund of Canada CEF. It’s a PFIC for tax purposes and contains gold and silver bullion at about a 55/45 split. Because of its tax status, it’s a possible bullion play for a taxable account. You’ll want to use TurboTax or some other tax software.
Mining stocks provide the most leverage but are tied to the overall equity market. Bullion and mining stocks parallel each other over time, but often lag each other, sometimes by a significant amount. In this arena, the most leverage is with the smaller companies, but they also carry the most risk. With individual mining stocks, you can target a specific precious metal such as platinum or palladium and many actually mine more than one precious metal (e.g. Freeport-McMoran FCX is copper and gold).
Lastly, for those that wish to actually own some of the stuff, you can buy bullion. In large amounts, this is normally warehoused and insured and you don’t actually take possession. In smaller amounts, you can buy bullion in various forms and keep it in a safe deposit box or safe. There are ingots, coins, and don’t forget jewelry. For purposes of bullion you want to minimize any mark-up or premium while buying something that will be easy to sell at a later date. Same goes for bullion you buy in the form of jewelry – don’t buy designer brand names, just go the purest you can afford.
With gold, platinum and palladium, you can buy 1 ounce ingots or rounds and fractional sizes, such as1/2, 1/4, and 1/10 ounce sizes. With silver you can buy ingots and rounds in 1, 10 and 100 ounce sizes. The one caveat with buying plain bullion ingots or rounds is that they should be stamped and marked as to weight, fineness, etc. Indeed, you’re better off going with one of the major producers such as Engelhard, Johnson-Matthey, or Credit-Suisse as these are easier to sell. Also, as with most things, there are volume discounts meaning the more you buy at one time, the cheaper (closer to spot) they are on a per ounce basis.
You can also buy actual bullion coins issued by many countries. These include the U.S., Canada, Australia, South Africa and many others. Bullion coins will have a greater premium over the spot price, but because they are ‘official’, they can be much easier to sell. Bullion coins come in two basic varieties – Proof and Uncirculated. The former are special coins made for collectors and carry an even higher premium than uncirculated. They make great gifts, but are a terrible way to buy bullion. Bullion coins should be the uncirculated variety. Gold and platinum can be had in 1, 1/2, 1/4, and 1/10 ounce sizes while silver come in the 1 ounce ‘silver dollar’ size. In this category, the we have both the American Eagle and Buffalo series in the U.S. offering. While these have a higher premium than some of the other national offerings, they’re extremely fungible.
Lastly, you can buy ‘junk’ U.S. silver coins. These are dimes, quarters, and half dollars from 1964 or earlier when they were 90% silver. These are normally sold either circulated or uncirculated and by the ‘face value’ of the coins (e.g. $50, $100, $1000).
As for futures, they’re a subject beyond my understanding, and can be very complicated. I would suggest that this is NOT an arena for the novice.
Web sites of interest are:
www.gold-eagle.com - great commentary
www.kitco.com – current spot prices
www.apmex.com – good source for buying bullion in its various forms
Note that these are all sites that are bullish on gold and the precious metals so their commentary may be biased.
Ronald V. Overton
2010 Wacousta, MI
Hi Mike
My rear view mirror experience with USAGX and VGPMX has been red hot and ice cold. Taking periodic profits are where I have enjoyed owning such investments. Investor made a good point that PM miners are leveraged plays. So, one has to ask themselves is it worth the risk. For me I have tried to watch its upward and downward movements so if and when I am ready to allocate a few "bits of silver" I have a sense of the downside risk. A dividend payment during a sideways price movement makes PM mining fund worthy of consideration..especially after a recent period of downward price movement...kind like a dividend paying bank stock.
USAGX offers little in the form of yield, but right now VGPMX has a 4.37% yield...this seems like a reasonable combination of present "income" and possble future "growth" .
Here's a direct link to Amazon, with MFO getting a small slice: The Power of Gold, by Peter Bernstein. The hard cover from Amazon is really well done- nice paper, and beautifully illustrated.
Great book, a nuanced narrative probably grating to hardcore bugs.
Between the American Civil War and World War I, gold became the near-universal standard, ''a symbol of sound practice and a badge of honor and decency,'' said Joseph Schumpeter, the great economist. The era was known for prosperity and financial stability. But Mr. Bernstein sides with Benjamin Disraeli, who said in 1895, ''Our gold standard is not the cause but the consequence of our prosperity.''
http://www.nytimes.com/2000/10/22/business/book-value-it-certainly-glitters-but-what-is-it-worth.html
Iow it was Disraeli's view that the Golden Age of the gold standard wasn't what allowed for an extended period of relative peace and prosperity, lessening the cheating,
currency wars, that spiral into conflicts but rather it was the extended period that allowed for the continuance of a gold standard.
10% in PMs mostly FSAGX VGPMX, added some this week.
Gross--
The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets.
REPEAT: THE COUNTDOWN BEGINS WHEN INVESTABLE ASSETS
POSE TOO MUCH RISK FOR TOO LITTLE RETURN.
Visible first signs for creditors would logically be 1) long-term bond yields too low relative to duration risk, 2) credit spreads too tight relative to default risk and 3) PE ratios too high relative to growth risks. Not immediately, but over time, credit is exchanged figuratively or sometimes literally for cash in a mattress or conversely for real assets (gold, diamonds) in a vault.
http://www.pimco.com/EN/Insights/Pages/Credit-Supernova.aspx#.UQp3KOIdHWo.twitter