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Opinion is divided here, at Miles Franklin, on mining shares.  Andy Hoffman is strongly against them, at least until they have started to move up and are solidly in a new bull market – and he has good reason to feel the way he does.  Bill Holter does not share Hoffman’s negative opinion on the mining shares, though he would agree that they have been a horrible investment over the last few years.

Both Bill and Andy worked for Wall Street firms.  Holter worked in retail sales and Hoffman was a sell-side analyst.  Their work experiences were very different.

Andy Hoffman had a good “run” with the mining shares, but when the bottom started to fall out he moved out of the stocks and re-invested the funds completely into physicals.  I believe Holter did as well.  So did I.

Here is a simple fact about mining shares – they outperform the physicals when gold and silver are moving up and they do much, much worse when prices are falling.  Assuming you own the right stocks and that is not always an easy thing to do, and if you can pick the bottom, you can do very well with mining shares and they should be a part of a well structured and diversified precious metals portfolio.

It’s much easier to just buy gold and silver coins – nothing to pick and choose here; no major mistakes; either they go up or they don’t, but with mining shares some (a few) do really well and others can be a total disaster.  That’s one of many reasons that Andy Hoffman is negative on the shares vs. the physicals.

But looking at the basics, physical gold and silver are “money.”  They are “insurance.”  They are the bedrock of a portfolio, the base of an investment pyramid and should not be treated as an investment that is bought and sold with the ebbs and flows of the market.  The physicals are the main course of your dinner and the stocks are the fancy desserts.  Sometimes, it’s best to skip the dessert.

Our friend Jeff Clark, of Casey Research, sent us his latest research.  It promotes mining shares, but the research is valuable for use to justify purchases of gold and silver coins too.  Do I agree with his conclusions?  Yes.  In fact, I just added a small amount of shares to my portfolio – it’s the first time I have bought mining shares in quite a while.  Remember, the shares should not be used instead of physicals.  Both serve a purpose but the physicals come first and are the foundation of your precious metals diversified portfolio.

(PS:  Both my son and I buy all of our shares through Sprott Asset Management, formerly Global Resources.  All of their brokers are good people – Andy and I use Mishka and Eric).

An unexpected thing happened this morning.  When I turned on my IMac at 8:00 a.m. gold was up $6.70 to $1,262.40 and silver was up $0.13 to $19.69.  The dollar was up as well, 0.06 so it had nothing to do with the strong showing by the precious metals.  Why is that so unexpected?  Because usually gold and silver head into the opening in NY DOWN, and the rollovers out of the February contract are almost upon us.  All contracts, except those standing for delivery in February, have to be sold, or rolled over by the close of Comex trading tomorrow.  The Cartel usually is slamming the metals now, to squeeze as much profits as possible from the expiring contracts.

Ed Steer comments on today’s action…

The rollovers out of the February delivery month—and the results of the FOMC meeting later this afternoon in New York—will dominate price action for a few more days.  What happens after that is anyone’s guess.  I know what should happen, but it remains to be seen if it will be allowed to happen.

The gold price is still above its 50-day moving average, but trending lower—and silver has never seriously broached its 50-day moving average to the upside and is now well below it once again.  Here are the six-month charts for both metals.

Casey Research, January 29, 2014