Mining Shares Follow-Up

This will be a brief follow-up of letters 24 and 25. I strongly urge you to re-study those letters before reading this one.  (Letter 24, Letter 25)

The scenario mentioned in letters 24 and 25 is working out in text-book fashion in my opinion. Physical gold and silver are becoming a better buy every day. This is a good time to add if you are not yet holding your target positions. As always, I suggest accumulating in small increments, as we could easily see lower prices before this correction is over.

An even better buying opportunity, though a more risky one, is developing in the gold and silver mining shares (again, my opinion). 

Yesterday I added to my SLW (Silver Wheaton Corp - NYSE).  It is down from a high of 19.54 to 12.76 at yesterday’s close, a decline of 35%. I consider it an excellent buy here. I didn’t add to my other silver stock, SSRI (Silver Std Res. Inc. - NASDAQ GM - I already have a larger position, but may add soon), but it is down from a high of 48.16 to 24.76 at yesterday’s close, a decline of 49%, also an excellent buy. These are my two favorite mining stocks. I believe they will have a great future when silver resumes its uptrend.

I also bought an initial position in Yamana Gold (symbol AUY), recommended by several experts I have confidence in. It is down from a high of 19.93 to 12.48 at yesterday’s close, a decline of 37%.

Please note the following about these transactions:

First, these are speculative investments. I am moving cautiously using money I am willing to subject to higher risk. I suggest keeping your “safe” money in Permanent Portfolio (PRPFX) as previously explained.

Second, for those who want to invest in this category, but use a safer, more diversified, approach, I suggested (in Letter 25) using Tocqueville Gold Fund (TGLDX). In my study over the past few days, I have discovered a mutual fund I like even more than TGLDX. It is U. S. Global Gold and Precious Metals Fund (symbol USERX). It is managed by Frank Holmes, who has a stellar track record over many years. If you already own TGLDX, there’s no reason to disturb it, but I would put new money into USERX. 

Third, if gold and silver mining shares continue to fall in this correction, I am willing to accumulate them up to a limit of 20% of my portfolio. I may sell a portion of my energy shares (which are making new highs) if necessary to help provide funds for this allocation. My target position on any individual stock is 2% to 4%. Note that if you use the mutual fund approach (TGLDX or USERX), you don’t have to worry about individual stock positions. Note further that my mining stock allocation is separate from my physical gold and silver allocation, which I want to keep at the 30% level.

Fourth, the individual companies I am selecting are not the junior companies (sometimes referred to as “moose pasture” companies). They have good properties with proven reserves, some already in production, and located in safer countries. They will be take-over targets by the major mining companies. The reward/risk ratios on these companies are improving rapidly as this correction continues. Still, they are speculations. I suggest you select your approach (mutual fund or individual stocks) and your position limits based on your personal convictions rather than what I am doing.

More later, God enabling……………………………….Jay