Guest Post
While mainstream financial and a growing number of economic forecasters focus on investors fleeing the gold bullion market, I am following in the footsteps of central banks around the world.
As investors sold ETFs in February, central banks around the world added to their gold bullion reserves.
1 OZ Gold Krugerrands As Low As $44.99 Over Spot!
Submitted by Michael Lombardi, MBA
Investors pulled out a record amount of money from gold bullion-backed exchange-traded funds (ETFs) this past February. A total of $4.1 billion was withdrawn from gold bullion ETFs last month, the largest single-month outflow since January of 2011. (Source: ETF Trends, March 6, 2013.)
Gold investors fled the market on speculation that gold bullion prices will plummet, as the metal’s future looks anything but bright—the theory being the global economy is improving and central banks will need to pull back on their easy monetary policies.
But, as investors sold ETFs in February, central banks around the world added to their gold bullion reserves.
South Korea added another 20 metric tons of gold bullion to its holdings in February—raising its gold reserves by 24% to 104.4 tons. Since June of 2011, South Korea has purchased gold bullion five times. (Source: Bloomberg, March 6, 2013.)
Similarly, central banks from Russia and Kazakhstan have been increasing their gold bullion holdings as the prices go down. According to the International Monetary Fund (IMF), the Russian central bank purchased 12.2 tons of gold bullion in January.
As the World Gold Council cites, central banks across the world ramped up their gold bullion buying; they bought 534.6 tons last year, 17% more than the previous year.
When you have the former biggest sellers of gold bullion, central banks, turning into buyers, it is nothing less than a bullish indicator.
What holds true is that central banks need gold bullion because countries around the world are in an outright war to lower currency values and thus central bank reserves are in danger.
I will turn bearish on gold bullion the day I find central banks have both turned to net sellers and stopped printing paper money out of thin air. Until then, I see the current correction in gold bullion prices as a great opportunity for investors.
From the S&P Case-Shiller 20-City Home Price Index, we can see that home prices are still down almost 30% from their peak in early 2007.
As the chart shows, a little change in home prices doesn’t really mean recovery in the housing market. On average, home prices in the U.S. economy will have to go up about 42% for the people presently living with negative equity in their homes to break even. This much of a recovery could be far away for the U.S. housing market…
According to RealtyTrac, foreclosures in the U.S. housing market dropped seven percent to 150,864 in January from the previous month. One in every 869 homes in the U.S. housing market was on the verge of foreclosure in January. (Source: RealtyTrac, February 12, 2013.)
And, according to real estate research firm CoreLogic, in October of 2012, foreclosures accounted for 11.5% of total home sales. In the same period of 2011, they accounted for 17.3%. But in the same period when foreclosures declined, short sales climbed from 10.4% to 8.4% of all sales. (Source: Wall Street Journal, March 5, 2013.)
Short sales, where a homeowner sells his/her home for less than the mortgage and the bank takes the loss, have taken up the slack in foreclosures! Add to this the fact that first-time home buyers are not present in the U.S. housing market rebound while institutional investors are buying single-family homes in bulk and renting them, and all of a sudden the U.S. housing market rebound is questionable.
There is no doubt the U.S. housing market is one of the places that can drive the U.S. economy towards economic growth. When Americans buy homes, they spend money to get things needed to run the household; consumer spending increases, businesses sell more, and so on and so forth.
As long as the housing market stays distressed, you can forget about economic growth. There is no doubt prices in the U.S. housing market have increased since 2012, but looking at the bigger picture, I’m skeptical. If the U.S. housing market is any indicator of economic growth, I am certainly not betting that the U.S. economy will do any better.
Where the Market Stands; Where It’s Headed:
I may be the only bear left standing, but that doesn’t bother me.
We have a stock market that has risen simply from an expanding money supply (money printing and artificially low interest rates). Corporate insiders are selling, corporate earnings growth has turned negative, stock advisors are far too bullish, the economy is slowing—all the indicators of a market top.
What He Said:
“Even the most novice investor can now read the chart of the Dow Jones U.S. Home Construction Index and see that it is trading at its lowest level in five years. If, like me, you believe that stocks are an indication of what lies ahead, this important index is telling us housing prices are headed to 2002 levels! What would that do to the economy? Such an event would devastate the U.S.” Michael Lombardi in Profit Confidential, December 4, 2007. This devastation started happening the first quarter of 2008.
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_silv.gif)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_gold.gif)
Were those EFT’s just 100% sold, or was also metal extracted via customer delivery?
“Investors pulled out a record amount of money from gold bullion-backed exchange-traded funds (ETFs) this past February. A total of $4.1 billion was withdrawn from gold bullion ETFs last month, the largest single-month outflow since January of 2011.”
I also wonder what author is trying to tell us. My understanding is if there is a seller, there is also a buyer. How investors can pull out?
Withdrawing in my opinion means some entity is plundering gold from ETF: cheap price is a great opportunity.
Well, I understand ETF as stocks. The ETF (like GLD) is supposed to keep (a form of) gold to balance the value.
If a big shareholder exits and takes money back, the fund has a lot of gold to sell back onto the market. They might for instance decide to lose the paper stuff, and keep the physical. Whichever they held, and wish to hold.
Way some etf’s are worded withdrawals are in cash. And keep in mind most ETF’s only have 1 oz of gold or silver for every 100-300 ounces they have sold.
Yes, some ETFs are leveraged and do have only a fraction of the gold or silver they are supposed to own. Others, such as SGOL and the Sprott funds, are required to hold a specific amount of gold for a specific number of shares in the ETF. If people buy shares, the ETF must buy gold to back them. If people sell shares, the ETF can sell or hold the gold equivalent of those shares but they will need enough cash to buy the shares that people are redeeming. Some ETFs require settlement in cash only. Others allow metal withdrawal but put requirements on it, such as via the number of shares owned must be some specific but large number. Typically, this is either 100,000 or 1,000,000 shares.
Hopefully people are fleeing Electronically Traded Frauds and stacking real bullion held outside the system. If you do own ETF gold/silver you might as well have flushed all your money down the toliet on the day of purchase unless you rectify that fatal error.
Lots of people have made significant money in PM and other ETFs. The money I made from the PPLT platinum ETF was used to buy 5-oz. of gold recently. The trick is that one must buy low (Pt at $1400 an oz. when PPLT shares were bought) and sell high (PPLT shares stopped out with Pt at $1718). This was an investment and it worked well. As a result, additional cash was made available to invest in physical gold. I have done this a number of times with stocks and other ETFs but this was a first for me with a PM ETF. Investing is not a guaranteed loss. If done carefully, it can be done profitably.
Oh the Poor Souls that are in GLD and SLV. I was there in both a year or so ago until I lost 10K! Now have a nice shitload
of both physical.
Hi Ho Silver (and Gold) AWAY!
“Gold investors fled the market on speculation that gold bullion prices will plummet, as the metal’s future looks anything but bright—the theory being the global economy is improving and central banks will need to pull back on their easy monetary policies.”
GLOBAL ECONOMY IS IMPROVING???
DOES CAPTAIN KIRK KNOW WHAT PLANET WOULD THAT BE ON???
As for the Housing Market, I’m one Broker that’s very Bearish on it. The figures they are putting out are so ridiculous that I’m embarrassed to say I’m a Realtor. I feel sorry for people buying their homes right now as I still see more drops to come along with MORE FORECLOSURES coming on the market.
Those of us who bought ultra cheap and have 100% equity are sitting okay, so the price drops. I don’t care because I don’t owe anything on it.
Agreed, Mary. My wife and I bought our current house in 1994. In 2003, we re-fi’d to a 4.6% interest rate 15-year loan and cut 6 years off of the payback time. Our mortgage is now down to about $40k, which we can pay off at any time. The selling value of our house is right at $400k. A similar home right next to ours sold for that a few months back. Anyway, this is our home and the roof over our heads. It is not an investment. Since we will be buying another home, probably a smaller one, when we sell this one, the price is not a big concern. Whether prices are up or down then, the difference in price will likely be about the same.
John Paulson, the hedge fund operator who shorted the AAA subprime mortgages and made several billion in profits, reinvested in GLD. GLD is down so he sold some of his holdings while Soros sold all of his. But Paulson must be doing something right he is moving his hedge fund to Puerto Rico to avoid capital gains taxes on $5 billion plus in profits. His taxes in PR. Just about 0. Two things occur to me. He is making profits on GLD and other investments. He knows a thing or two about taxes and gold is a good place to be. The paper GLD might not end well even for Paulson but maybe he’s figured out how to take delivery since he owns millions of shares of GLD.
Given Paulson’s long term record of investing capability, it would be foolish of him to invest in GLD if he was not assured in writing that he indeed can settle his shares for either cash or gold. Furthermore, it is likely that an investment the size he can make will be allocated into a specific vault and not be part of the GLD general pool account.
These hedge fund guys are some of the sharpest tools in the financial drawer. We can all bet money that if they are doing something, it is for a damned good reason and is likely to be a sweetheart deal that none of us could ever get. Paulson has had some setbacks recently and has had people pull out of his hedge fund. His confidence that buying gold via the GLD is a good idea is impressive in the face of his recent losses. He has been in gold for a while now, so is likely still underwater on his GLD shares. But… this game is far from over and when it does end, it is likely that Paulson will be walking away with a lot of gold and / or cash in his hands because of it.
While Paulson is a great investor, the guy with whom I would like to invest is Kyle Bass. I have watched a number of videos of him speaking to various investing groups and he always impresses me as a VERY bright guy who knows a lot about investing and how to convert a small amount of money into a large amount. In fact, it was his thought in one of the videos that got me interested in and eventually buying the YCS double short yen ETF. As the yen declines, which it is now doing and will likely continue to do, this ETF rises twice as fast as the yen falls. So far, so good. After only about 3 weeks, it is up 7%. Not bad but hopefully it will do better over the coming months as they get the turbo fitted to the BoJ printing press. As with my other paper investments, all profits will be directed into phyzz. :-)
Hey all,
I have been visiting this site since Janruary of this year. I’d say it’s an addiction now, as I am visiting hourly at this point. I haven’t had too much to say, still learning. I started stacking at $32 and picked up a canoeload of silver and a few ounces of gold. I am happy with my purchase as I have been wary of impending doom for a while now, yet unsure of how to protect myself before now.
I may ruffle a few feathers here, with the hardcore paper money haters, but i’m going to say this because I think it’s important.
In Canada, we have a tax free savings account that can be linked up to the stock market, I’m not sure if there’s something similar in the USSA. Any gains that you realize are untaxable, which is what made me somewhat interested in looking up this year. I wanted to buy a few mining stocks as well you see, because I believe they are very undersold at the moment, and as I believe the silver and gold story, why not profit on paper as well? I looked at a few ETF’s and figured GDX (the gold miner majors) would be where i’d park my money.
However! I found a stock that basically tracks the GDX ETF, yet it’s paying a 24% annual yeild, at 10cents / share each month. Some math for you:
If you invested $20,000 as I have, at a price of $5 per share, and just left it there, you’d have 4800 per year coming back at you in the form of dividends, or 400 per month. That’s a lot of free silver. You’re basically getting your money back regardless of what happens to the actual stock price in just over 4 years. Compound interest figures if you were the type to reinvest on the dips look even nicer.
I’m not sure what the doc has setup for rules about listing exact stocks, so i’m not going to mention it unless he says it’s ok, because i’m not here to pump and dump my stock, i’m here to give all the stackers out there some food for thought.
Just my 2oz,
-Koda
@Kodachrome – Welcome to the SD community, glad to have you join the discussion, and glad you have been able to protect your wealth with phyzz.
Feel free to discuss your stock with the rest of the SD community. We are bullish on the miners as well.
-Doc
Thanks Doc! It’s nice to be welcomed like that.
So the stock I have found is listed on the TSX (toronto stock exchange), I believe it’s like a mutual fund that purely invests in the miners and if you do a stock comparison between it and GDX on googlefinance you’ll see they are pretty close. The dividend is the kicker though, it’s like you’re the bank, charging some sucker 24% interest. Except you’re investing in gold, something we all figure is going to take off. I honestly put a lot of effort into finding this puppy, and am pretty pleased with the discovery, so without further adu, here it is.
MMP.UN is the ticker, i’m not sure if everyone knows how the dividends work so let me give you a rundown before you put any money in willy nilly.
Dividends for this stock get paid every month and they give you 10 cents per share. Shares cost just under 5 bucks right now, I bought mine a few days ago for 4.94 (the motherload) and 5.04 a few days earlier, yet I saw it drop to 4.75 at one point.
I suggest buying on a low day, because any money you put in is then ‘locked away’ at that yeild for as long as you hold those shares. Regardless of what happens to the stock price! If it goes to $10 you still get your 24%, same if it goes to $3. Any additional shares purchased would be ‘locked away’ at a different yeild if you were to buy them for a different price. It’s much like dollar cost averaging with silver.
So if you bought at $4.80, you’d be getting a 25% yeild. $5 will get you 24%. This particular stock is in $CAN so if you’re bearish against the USD long term you get some value there too.
Anyways, like I said earlier, it’s tax free money(if you invest in such a product with your respective government) coming in which you can put towards silver. I think it’s win win.
I should just say that i’m pretty new to the stock market and am no investment banker or anything like that, so I suggest you do your own research like I did before making any purchase or anything.
KEEP STACKIN!
-Koda
Hello, Koda and welcome to Silver Doctors! :-)
Here in the US, we have Roth IRAs and Roth 401Ks that people can use to make investments for retirement. The tax is paid on the money contributed to these plans up front, so there is no tax deferral on the contributions, but… there is no tax due on qualified distributions, either. QDs occur when the investor is older than age 59.5 and has had the account for at least 5 years. If those two conditions are met, then any money withdrawn from these accounts is 100% tax free… so far, at least.
One of your comments confused me a bit, so to clarify it…
“I wanted to buy a few mining stocks as well you see, because I believe they are very undersold at the moment…”
Actually, it is shares that are oversold and therefore low in price that make the most attractive purchases.
My only comment on your stock find is that a 24% dividend does not sound sustainable to me. Mining companies typically are not awash in cash, so how is it that they can pay a dividend that is equivalent to an interest rate that is 6-8x the going rate? In most cases, companies only pay such a high rate because they HAVE to. Knowing that makes me wonder what is it that forces them to do this rather than borrow from a cheaper source. If there is no cheaper source for them, it usually means that they are on VERY shaky financial ground. If so, then making those huge dividend payments will not be helpful to them.
I very much hope that this works well for you… but there is likely a great deal of risk involved in this particular stock.
Kodachrome: I looked at the trust (and it’s a trust, not a fund) for a few minutes and I already see a few things that need to be said given that you’re promoting this and I think you need to understand what you’re buying better before suggesting it to others.
First off, this trust invests in all kinds of mining – base metals, diamonds, etc. This is not a pure play in the PM sector.
Americans would be very wise to not jump on this before looking at tax issues. When you buy trusts outside the US, there usually are extra steps you will have to take to show that dividends should be treated at the lower dividend tax rate as “qualified dividends,” and that the correct witholding is performed.
This trust appears to just own equity (shares) positions in mining companies, not the direct stake in actual mines. Meaning that the trust’s only form of revenue flow results from dividends the mining companies pay, and the sale of shares. The other way a dividend can be paid is when it takes the form of a return of capital of the fund (which also can happen when shares are sold). This trust has paid dividends in the last few years strictly in the form of a return of capital. It makes me wonder what they own. When trusts are paying strictly return of capital, that usually means the assets long-life resource assets that have good cash flow but are not the type of situations where there’s much new drilling and potential growth. But more importantly, if one is buying at CA$ 5 per trust unit (again, not shares), and for the sake of discussion so I can easily make a point, the next dividend of ten cents is issued from a return of capital, theoretically, nothing has changed and the unit should be quoted at CA$ 4.90. One needs growth of cash flow somehow for that CA$ 4.90 not to be the result, all other things being equal. They’ve had over two years of nothing but return of capital distributions and that’s a warning flag that needs to be investigated just to be sure one has a solid understanding for what kind of assets the trust owns.
This is a closed-end trust fund so there’s a chance the unit price can sometimes trade lower than the underlying net asset value, and it would be ideal to buy at that point.
I’ve looked at their corporate summary page for the trust. It’s not very informative. But it does have handy links to SEDAR filings. Kodachrome, you should look at those filings. Find out what it holds.
One thing to always remember: Any sky-high dividend yield must be sourced from something. Just because you see a high yield doesn’t mean it’s an attractive situation. In 95 out of 100 cases, there are darn good reasons why the yield is so unusual and the situation is deceptive.
@ed_B
You’re right, I meant to say oversold. When there’s blood in the streets, buy. That’s the golden rule, right? I think this company has interests in the gold produced by mining companies, like it financed them up front and receives cash each month which it in turn pays out in the form of dividends to shareholders. If you look back, they’ve been paying the same dividend each month since 2008, just the % changes due to the stock fluctuations. In the crash at 08 you could have bought in at $3 per share, and in 2011 they were up at $11ish. The 24% interest doesn’t scare me as I know the fund started its dividends at a lower percentage (based on a higher price point per share)
It’s really hard to pick a bottom, but a lot of the articles i’ve been reading lately have been calling for the mining sector to get some much needed attention, hence why I strapped in when I did.
Thats the way I see it anyway, thank you for the advice however, I have been very anti stock market until just recently.
-Koda
I want to mention that I just read this article today regarding my stock I was just talking about! They are dropping their dividend from 10 cents to 7 cents due to the low stock price, thus reigning in their yield significantly. I’m still keeping it, but it sucks that they did that right after I bought it. :p
http://www.theglobeandmail.com/globe-investor/news-sources/?date=20130314&archive=ccnm&slug=201303140859880001
“When there’s blood in the streets, buy. That’s the golden rule, right?”
Yep, that would be one of them. Right up there with “buy low, sell high”. :-)
“I think this company has interests in the gold produced by mining companies, like it financed them up front and receives cash each month which it in turn pays out in the form of dividends to shareholders.”
Ah, then they have a business model that is similar to the Silver Wheaton company.
“ In the crash at 08 you could have bought in at $3 per share, and in 2011 they were up at $11ish.”
Yes, back in 2008, many things were on sale. Some of them should have been but others were just carried along for the ride. The trick is in knowing which is which. A $3 buy-in followed by a 300% rise would have been sweet. Like a lot of others, though, I was not buying much back then as it was a VERY scary time to be exposing money to such a vicious market.
“The 24% interest doesn’t scare me as I know the fund started its dividends at a lower percentage (based on a higher price point per share)”
Courage is a necessary item for investors to have, but then, so is caution. It is how we blend these together that will determine whether or not we are successful, though.
“It’s really hard to pick a bottom, but a lot of the articles i’ve been reading lately have been calling for the mining sector to get some much needed attention, hence why I strapped in when I did.”
Yes, it is difficult to spot both bottoms and tops. After many years investing, I now have a pretty good record at knowing when to buy but selling still eludes me. In most cases, it works best for me to figure out how much money I think can be made in an investment and then sell it when that is achieved. This sometimes leaves money on the table, as they say, but it really can’t be helped. As long as I can make what I think is a good return, I do not mind if others make some too.
“Thats the way I see it anyway, thank you for the advice however, I have been very anti stock market until just recently.”
Thanks for your point of view. Reading what others are thinking and doing benefits all who read their comments. Yes, the stock market can be a scary place but the more one learns about it, the less frightening it becomes. Some caution is always a good thing when putting money at risk but we need not let it paralyze us into inactivity.
“I want to mention that I just read this article today regarding my stock I was just talking about! They are dropping their dividend from 10 cents to 7 cents due to the low stock price, thus reigning in their yield significantly. I’m still keeping it, but it sucks that they did that right after I bought it. :p”
Been there, done that. Share prices can be quite dependent upon the dividend, so if that dividend is cut, the share price can take quite a hit. Sorry to hear that this happened so soon after you bought it but this is part of the high risk that high reward investments often have. The good news here is that the stock bounced higher soon after the dividend cut was announced and the share price fell, so while this did cut the share price by 10% when the dividend cut was announced, it did rise soon thereafter, reducing the initial loss. This usually means that while the dividend cut was significant, it was not a threat to the share price in the longer term. Hopefully, they will not have any additional dividend reductions. The market will usually tolerate a dividend cut in an otherwise decent stock but not a repeat of it.
@Kodachrome:
“dropping their dividend from 10 cents to 7 cents due to the low stock price…”
No, that’s not why. Stock prices have little to do with why a management team will raise or cut a dividend, other than cases where management wants to make a stock look more attractive to income-focused investors and the company actually has the cash flow to support a higher payout. No, in this case, it’s obvious they’re cutting it because they don’t have the cash flow to support it (read what I wrote about return of capital in my post above). I can even say all this and be almost 100% certain I’m correct without even reading the cut announcement and without reading their filings overall.
@flying-wombat
I did a lot more research on this trust, thanks for all the education in your previous posts!
Below is a list of the securities it was invested in as of 2012 on a percentage basis.
Do you think I should keep this fund or maybe just try to get rid of my position in it after I break even (including dividends) or if the price goes up a fair bit, invest in something else perhaps? I think it’s a good trust, just had bad luck lately with the miners, as has anyone else who invested in them last year for example. Hence why I’m buying now.
SEMAFO Inc. 14.88
Rio Alto Mining Limited 10.38
Allied Nevada Gold Corporation 8.68
AuRico Gold Inc. 8.18
Timmins Gold Corporation 6.66
B2Gold Corporation 6.39
Osisko Mining Corporation 5.88
Silver Wheaton Corp. 5.83
Alamos Gold Inc. 5.25
Fortuna Silver Mines Inc. 4.29
Perseus Mining Limited 3.50
Sandstorm Gold Ltd. 3.47
Golden Star Resources Ltd. 2.96
Avion Gold Corporation 2.64
Teranga Gold Corporation 2.35
Scorpio Gold Corporation 1.92
Cash and Cash Equivalents 1.81
Argonaut Gold Inc. 1.50
Silvercorp Metals Inc. 1.35
Lachlan Star Limited 0.84
Volta Resources Inc. 0.82
Aura Minerals Inc. 0.52
Sandspring Resources Limited 0.48
Premier Gold Mines Limited 0.38
Atacama Pacific Gold Corporation 0.36
@Kodachrome: It’s a bit tricky for me to give specific stock advice when I don’t really know what your personal situation is, nor do I understand your risk tolerance, etc. Legal compliance issues also factor. But I can give you some basic feedback.
For starters, take your time with investing. You don’t have to rush. There’s always going to be opportunities — in good and bad markets. I can say with almost total certainty you will, over the course of your investing life, make a heck of a lot more money in the positions that you have taken the time to truly understand, and where you feel you have made well researched decisions. When an investor comes from that level of certainty, it’s also generally easier to deal with the head pounding times like the current correction.
I’ve been a securities analyst and fund manager for over 20 years now. I still make “mistakes” all the time. All investors make mistakes and if they say they don’t, they’re probably lying or they don’t make many decisions. You will make mistakes all the time. Don’t ever let that get you down. Use those situations as opportunities to learn.
I recognize well over a third of the companies you list — and I probably own about 20% of the names in that list too. It looks like an OK trust as far as the equity positions are concerned. I’ve heard of Jon Case, the primary portfolio manager, but I don’t really know his work well so I can’t comment on his management ability. The trust doesn’t have a long track record so it’s hard to compare it to peers. But since 2007 the performance is pretty much in keeping with industry peers. By the way, I noticed I messed-up when posting the trust summary page link – which has performance figures. Here’s that link again:
http://www.sentry.ca/en/funds/structured-products/pmmt.html?seriesId=155
Generally speaking, given how this trust has had a history of burning through capital to return capital to fund distributions, I’d generally avoid it. And you do realize what I was getting at when I talked about dividends/distributions, right? I know at first glance it might seem like you’re getting a sweet deal with a high declared distribution. But really, all they’re doing is milking the assets held (by selling stock) to pay out a return of part of the capital (the stock holdings) held by the trust. From 2008 through 2012, they only managed to have one year where a piddly 14 cents of the $1.20 distribution came as a capital gain, with the rest being return of capital. I’ve have to spend about 30 minutes to really figure out what is going on here, but that much emphasis on return of capital isn’t a good thing.
Since you just bought it and since we’re likely at the start of a move higher, selling it doesn’t make a lot of sense. But when and if you do want to sell, that decision should be made pretty much isolated from considerations such as whether or not you have a profit. Don’t ever be hesitant to take a loss if fundamentals and your objectives compel action. Novice investors get emotional about losses, considering the booking of a loss to be confirmation of failure. Heck, failure is part of what it takes to be successful in much of life. Learning from mistakes is key, but employing tax losses is pretty sweet too. I don’t know all the details for Canadian law, but in the US it’s pretty easy to have a tax loss set against profits taken elsewhere. There’s even some wiggle room when it comes to complying with the provisions of the IRS “wash rule.” Basically, the IRS says one can not sell at a loss and buy a new position within 30 days that is “substantially equivalent.” It’s a subjective definition. But generally speaking, if someone is rotating out of a gold stock that crashed with the sector over the last six months and turning around and buying an equally bombed-out silver company, that’s OK by the IRS. The swap will let the investor book the tax loss to be applied against gains in the future, while at the same time, getting the investor into a new position that has the opportunity to rise just as much – if not more – than the dumped position, thus keeping (roughly) the upside of the jettisoned position, while gaining the benefit of the tax loss. I mention all this because it’s directly related to the question of when to sell for a loss, and it’s a rotation strategy that average investors fail to capitalize on.
Bottom-line: In the long-run, you’d be better off in a high quality precious metals mining sector fund. Since you’re in Canada, check out the folks at Sprott. The Tocqueville Gold Fund is also an outstanding fund (usually holds silver names too). If you want to go with your own stock picking, I’d suggest sticking with at least 80% of your precious metals stock allocation going towards the more blue-chip names. In the silver space, companies like Silver Wheaton, First Majestic and Endeavour Silver are super high quality companies. Owning them will not be as fun as owning a Jr. miner that moves from ten cents to $15! But actually getting into those sort of moon shoots is simply dumb luck for most folks, and educated guesses for even the pros!
I’ve rambled a bit. But I hope the above is helpful to you. Feel free to ask me questions from time to time. I don’t always have the time to give detailed responses, but I’ll try.
Disclosure: I own shares of Silver Wheaton, First Majestic and Endeavour Silver. I have no relationship with Sprott (other than holding some of PSLV), nor Tocqueville.
Thanks for that, very informative. I am heading to bed now so I don’t have much time for a response, but I will definitely take you up on your offer with more questions in the future. I’m not afraid to book a loss, this morning when I saw the notice about my trusts dividend being cut I assumed the price would tank and then shoot back up just as it did. So I’m pretty proud of myself for not selling it for some crazy 10% loss based on sound reasoning. That being said, it’s still down, and after what you’ve said about them taking from capital to pay dividends I think I may just toss it after the hopefully upcoming rally in April turns sour. (that’s my guess, April rally to 1750 gold, and then back down again, we’ll see how I do with predictions!)
…and it will be the unaware world citizens who will accept all of these fiat paper currencies while thinking that they have values. They will sell a big portion of their precious metals for cash while thinking that they are making profits in terms of fiat. They will be the most affected by that event.