Worst Hedges: Gold Mining, Silver, Platinum

By Krystof_Huang on Mon, Jan 9, 2017 - 8:10am

Many people and even specialist websites and their so-called experts seem to be misguided that investing in silver is similar to investing in gold. Therefore, I would just like to share my clear finding that the only true "safe havens" are close-to-spot gold coins and ETF gold bullion. Silver does not hold value during a recession--and in addition--silver bullion and silver coins and self-held gold bullion are easily counterfeited and therefore this lowers their general trading value even if you can prove yours is genuine.

If anyone can add corrections or improvements to my writings on this subject--please do, I am always eager to learn. Quoted below is a summary of a page on my website: "Worst Hedge Investments." http://stocknectar.org/tutorial/worst-hedge-investments

More information can also be found in my 2014 SeekingAlpha article: http://seekingalpha.com/article/2080513-10-best-gold-etfs-and-perspectives

Caution: silver is not a hedge but an anti-hedge. A “hedge” loses less often than usual–an “anti-hedge” loses more often than usual. Silver lost more than stocks during 2008 and also lost more than gold during 2013.

gold-mining-and-silver-2008-2013So, if someone says that silver is a hedge–please ask, what is it hedging? In fact, silver will negate the ability of stocks to hedge against gold and also negate the ability of gold to hedge against stocks.

Of course, silver often can be profitable–but so can many other investments–and which do not have special storage and tax problems. In addition, gold coins are just as easy to buy as silver coins, less bulky to store, far easier to authenticate and therefore more certain to sell quickly and at a fair price. It is foolish to buy silver coins when you can buy gold coins!

Of course, silver is more certain than any stock to rebound after losses “someday.” If you are a millionaire or a savvy trader in Futures or Options, then hoarding silver artifacts or making short-term exploits on SLV might make sense. Silver mining and processing can also be a good investment for the average investor with above-average chutzpah–if you focus on silver mines and processors that are buy-rated by several major analysts–and if you always maintain tight Stops so as to minimize the downturns–and always rebuy for at least one day a month so as possibly to maintain low long-term US tax rates. There are many more reputable silver mines than gold mines–and the higher volatility of silver makes for higher potential trend-trading gains–and unlike most investments in individual companies, there need be no concerns about managerial innovation or product competitiveness. So, some hands-on trend-trading in silver mines and processors can make sense. Otherwise however, there is nothing more foolish than either silver or silver mining for most investors who primarily want low-maintenance long-term investments.

Platinum and palladium are like silver on steroids. In addition to having even greater volatility, platinum and palladium prices are highly dependent on catalytic converters...

In summary: gold mining, physical silver, palladium and platinum all have zero hedging ability. Even worse, they are actually anti-hedges because they will generate losses that sabotage the gains of any true hedge at the most critical times. Anyone who says otherwise has not bothered to check the obvious facts. (See the performance history graph.)

As explained above, attentive trend-trading in silver mining offers a possible exception for investors with above-average initiative.

As a general rule however, please think about this. There are two arguments for gold: “get rich” and “be safe.” Many writers will attempt to inspire gold fever by implying, “look how much gold has gone up!” They then tack-on the implication that “silver has gone up even more–so buy silver, too!” However, please be clear that gold has an additional “hedging” and “safety” argument. Gold mining, platinum, palladium and silver do not have any “hedging” or “safety” arguments. The only argument for gold mining, platinum, palladium or silver is that “it recently went up a lot.” That is never a well-rounded argument for buying anything.

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