By Sean Williams
4 Reasons You Should Buy Precious-Metal Mining Stocks Instead of Physical Gold or Silver
The U.S. stock market has been taken for a wild ride in 2016, with the worst two-week start in recorded history, the most voracious intra-quarter rally in 83 years during the first quarter to erase double-digit losses in the S&P 500, and a complete reversal from the Brexit-based swoon. On Monday, Aug. 8, the S&P 500 hit an all-time intraday high, with the index itself up nearly 7% year to date.
Precious-metal stocks lead the way
However, if you look around the market you'll spot two groups of stocks that have left the S&P 500 and its 7% year-to-date gains completely in the dust. These two industries are gold miners and silver miners. Of the 23 gold miners with a market valuation of at least $300 million, 18 have at least doubled, 10 have at least tripled, and five have quadrupled in value this year. Within the silver industry, all six miners with a $300 million-plus valuation are up between 137% and 532% year to date.
These rallies have been fueled by a major reversal in the underlying metals these companies produce. Physical gold began the year at $1,060 an ounce and closed in New York on Monday around $1,335 an ounce. Silver, which began the year at $13.84 an ounce, closed at $19.67 an ounce.
Four reasons to buy gold and silver mining stocks instead of physical metals
Not surprisingly, with precious metals breaking their multi-year downtrend and riding strongly into a new bull market, investors have been eager to buy physical gold and silver. However, in my view, buying physical metals is not the smartest way to go. Instead, I'd strongly suggest that investors wanting to take advantage of a continued rally in precious metals consider buying individual mining stock. Here's why.
1. Growth vs. hedge
For starters, physical metals and stocks traditionally have different investment purposes. Physical gold and silver are often viewed as an investment hedge, whereas an investor buys stock in a company in order to take advantage of long-term valuation appreciation opportunities.