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Q:  My questions/comments are for David re: his article on Friday about the topic on confusion.  I am not confused by the likes of Dent and Edelson, as I do not subscribe to their crap!  I am also not confused about my decision to be “all in” with PM, namely Silver, vs. paper equities.  I am, however, somewhat confused with PMs always being identified as “insurance” by the Miles Franklin team.  To my understanding, an investment is when you purchase something and hope that it provides a return on your principal, as in the theory of buy low and sell high. An investment can be defined as “the action or process of investing money for profit or material result”, or basically pure speculation, which is what I have been actively doing for the past 5-yrs, watching my speculation be devalued by as much as 50%.  At this point in time, my safe full of silver does not really feel like much of an insurance policy!  But hey, we are all waiting for PM to rocket to the moon, or beyond, thus I continue to patiently wait for lift off.

My other question (do I get two?) is about the Miles Franklin camp being so divided on their opinion of Mining Shares. We all know Andy Hoffman’s point of view, which is adamantly against them, but not so sure about Bill Holter’s take; however David has recently confessed as to purchasing several thousand shares of two companies with no comments as to his opinion to do so….. is now the time to be investing/speculating in mining shares? (I know, Miles Franklin is not a financial adviser). I have even quizzed Andy about his friend Daniel from FMT who has been recommending mining shares for the past year, specifically the new First Mining Finance venture, which is backed by such investors as Rick Rule and Admiral Eric Sprott. 

Any comments would be appreciated.

Thanks, Mike 

David Schectman’s Answer:
Mike,

Of course you can get two questions today. They are both well thought out.

First, regarding our opinions on mining shares – As you observed, Andy Hoffman is not a fan at all. Bill Holter is. So am I and my son Andy, but with a couple of qualifications. This will also tie into your other question. Mining shares are an investment, a speculative one at that. Physical gold, which I expect to increase by thousands of dollars above the current price, should not be purchased as an investment. It is a core “insurance policy” that hopefully you will never need. Whether it goes up or down is not part of the philosophy here, because if it were, you would be inclined to time your purchase and to sell it when it rose. That is not what we do with gold. Silver is another story. It acts sort of like a “poor mans gold” and does offer some “insurance” value but it is also an industrial metal and ebbs and flows (for now) with the strength of the global economy. Back to your question on mining shares – Whereas Andy Schectman and I will sell our mining shares for a profit; we try very hard not to sell our physicals. There will be exceptions, such as when I sold a meaningful amount of gold and silver two months ago for tax-loss purposes (to cover the tax liability from the sale of our Miami condo), but I have already re-purchased virtually all the ounces I sold, so I was only a bit underfunded in my core position for a month or two.

Andy Schectman and I use mining shares as follows. We buy them when they are very out of favor and CHEAP (like now) and when we believe a strong move up in gold and silver is imminent, which we do now. Sure, they may still go down but I do not and cannot pick a bottom, but picking an entry point that offers tremendous risk/reward is attractive to me. Currently, including my latest purchases, my mining shares represent 20% of my total metal portfolio and my physicals are 80%. The percentage changes as the shares make big moves up or down. That is a risk I can live with because the reward will make it worthwhile as long as I am correct about gold and silver going way up in price.

Also, I sell on the way up and the last time I did this, from 2001 – 2011, the gains were enormous and all of the profits were used to purchase FREE physical gold and silver. Yup, mining shares are a great way to leverage the gains in physical gold and silver and the profits can be used to build a very robust portfolio of real precious metals at no cost to you. Now you get free insurance!

Don’t feel bad that you haven’t had a chance to use your gold and silver “insurance” positions. Fortunately, you must not have had a need to and the collapse that they insure against has not (yet) happened. Try looking at it that way. That’s what I do.

As I have stated before, I hope I never have to sell my core position of physicals. I want them to go to my two children and five grandchildren. I will, however, sell my mining shares. Like I said – one is for insurance and not to be sold for profit, the other is for profit and is an investment, but timed properly, one of the best investments you can own.

Just don’t confuse paper gold and silver with real gold and silver. They are really a different asset class in your portfolio.

Best,

David

Q: Hi, could you explain to me,( a novice gold investor) how gold spot price has fallen today( Monday 24th ) when the stock market is in freefall. I always thought when stock markets fall precious metals gained. Am i wrong or is something unique happening?

Regards Stewart

Andy Hoffman’s Answer:
Stewart,

If you read this blog, you’ll understand quite quickly that the Precious Metal market is more manipulated than any other on the planet – which is saying a lot, given that nearly all markets are currently rigged, on a 24/7 basis.   The (U.S. government-led) “Cartel” does this to prevent fear from spreading over the value of the fiat currency they call the dollar, as well as general uncertainty about the effectiveness of fiscal and monetary policy.

Traditionally, the Cartel attacks hardest during times when gold and silver should rise – such as the Yuan devaluation and stock market crash – but in doing so, in the paper markets, they only create more demand in the physical markets. Consequently, shortages tend to arise, as we are on the cusp on in the silver market now – and as in 2008, when the entire world ran out of both gold and silver.

In time, the metals return to where they should go – but in recent years, the constant paper manipulation has been so repressive, they have pushed prices to unsustainable levels. This is why, with record global demand, inventories are plunging, and production on the verge of freefall.

Andy