Why Buy Physical Precious Metals Over Mining Stocks?

A Quick Glance at Investing in Precious Metals

Investing in precious metals has long proven to be a proper safe haven for investors, one that yields consistent results over the span of time. According to Investopedia.com, precious metals offer some obvious benefits over investing in mining stocks, such as hedging nicely against inflation, no credit risk, a high level of liquidity, ease of purchasing and providing for a more diverse portfolio. When you choose to invest in precious metals, you also have the option of investing in physical precious metals, which comes loaded with a plethora of additional considerations and what we would view as general added benefits to precious metals as an investment class. 

To the point, precious metals such as gold, silver, platinum and palladium are becoming more and more in demand across a wide spectrum of industries. Because these metals exhibit such remarkable properties, they are not just pressed for jewelry and coinage anymore. Therefore, it’s easy to suggest that there is a clear future as it comes to investing in these metals because their demand is on the rise and will likely always be so. 

A Quick Glance at Mining Stocks

Mining Stocks are publicly traded companies whose purpose is to find, extract and process deposits of valuable minerals such as precious metals. These mining companies also extract and process other metals such as iron ore, copper, aluminum and zinc, among others. They also indulge in energy materials such as coal, oil and uranium. 

So, it’s easy to see that putting money in mining stocks could make for a good investment. Energy and precious metals are both considerable commodities.  However, mining stocks could pose a bigger risk because of the potential for human failure or miscalculation or, in a number of telling instances, flat out scandal. That’s right, mining companies not only wax and wane with the value of the underlying commodities they’re mining, but you also have all the other added considerations of investing in a company on Wall Street.

Mining Scandals Involving Precious Metals

While more rare than not, mining companies and, thereby their stocks, can fall prey to fraudulent or inflated reports or discoveries of precious metals. One of the more infamous mining frauds that affected or involved precious metals is the Bre-X’s fake gold mine scandal that surfaced in the mid-90s.  Even analysts with JP Morgan were convinced and encouraged investment in the mine which, by 1997, claimed to have reserves in excess of 200 million ounces. 

You know the old saying “if it sounds too good to be true, it isn’t”. That would soon prove to be the case here. The project manager fabricated the numbers, and an investigation was soon underway.  The scandal broke and many lost on their investments accordingly. 

Why Buy Precious Metals Over Mining Stocks?

Mining stock, like most stocks, can make for a proper investment but companies are run by, well, people and sometimes people can be more than a bit flawed. The rule of nature is that we tend to be imperfect across the board. What can we do? This is what it means to be human. 

If you don’t want to worry about your Chile mining company being nationalized, you won’t have this concern with precious metals. If you want to remove all counterparty risk, you can take it a step further and physically secure your precious metals. A good mining company may or may not have more upside, and downside, than the underlying commodity, but it’s an easy conclusion to make that mining stocks, even for precious metals, are not a replacement for having precious metals in your portfolio.

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