Tags: Precious Metals

Money Morning Mailbag: When Investing in Precious Metals, 'Physical Metal' Isn't Always Better

[Editor's Note: After reading Money Morning columnist Jack Barnes' recent "Buy, Sell or Hold" feature on Silver Wheaton Corp., reader Rick Osborne responded by stating that physical silver and gold in an investor's hand will be the safest form of wealth preservation in a worldwide collapse of fiat money. As Barnes notes, "when investing in metals, 'physical metal' is not always better."]

By , Money Morning •

If there's one thing that I've discovered in my careers as a hedge-fund manager, investment advisor and financial columnist, it's this: Whenever you pitch a stock that has something to do with mining or metals, you'll always hear the argument that "physical metal is better."

As my experience has demonstrated, however, that's not necessarily true.

Wealth protection in hard economic times is driven by asset diversification. In good times, an investor should concentrate their investment bets on profitable enterprises, in hard times you want to diversify your assets across different asset classes. You will lose some money, but if you choose wisely, you will have real assets and value on the other side.

That's not always the case when you concentrate your assets during a period in which there's substantial market risk.

Silver... the Great Asset

One of my most recent "Buy, Sell or Hold" features dealt with Silver Wheaton Corp. (NYSE: SLW), meaning that silver is the metal at issue in this discussion.

Trust me, I know that silver is a great physical asset: I own it and use it as a currency. In fact, my last vehicle purchase was a trade for a fixed amount of silver. However, silver and gold have a downside. It can be confiscated easily by the police or criminal elements, when you are traveling. And the United States has devalued its currency overnight in the past, and has instituted a confiscation of personal gold holdings - meaning it could always do so again.

Physical metal is not typically registered in your name, so when you are robbed, you will have no proof that it was yours. However, if you are holding a stock certificate - essentially a certification of ownership in your name and not in "street name" - the company in question will have you listed in its records. With that piece of paper in hand, you can traverse national borders, without any worry about triggering any currency or metal-value rules.

Mailbag
If you are traveling with "real" money - currency, silver and gold, for instance - you are limited to a max weight you can realistically carry. I have a friend, who owns a major placer operation someplace in a Western nation. When returning to the United States, he's forced to transfer as many as four times moving between customs at different airports. He typically keeps his raw gold transfers to 50 pounds or less, because of the weight on his body when he moves through customs. He's even drafted family members to help him muscle the bags of gold nuggets from one point to another.

My point is this: Because of safety for the gold itself and the person packing it, there's a maximum amount of gold that my friend can move around the world. And silver is even worse. Try dragging your "net worth" around the world in the form of eight-pound silver bricks. It's legal ... but not recommended. And it's no surprise that it elicits stares from other travelers and raises the eyebrows of those in authority.

Back in the early 1980s, I had to empty my grandmother's bank vault in order to cash in silver bricks of that same type. I was in great shape at the time - I truly was - but a box with 85 pounds of silver in it isn't something that you can just tuck under your arm and stroll away with ... people notice something's up - it was even more noticeable when I placed the box in the back of the car and the rear of the car sank.

These experiences underscore why I prefer a diversified basket of financially sound investments.

Heavy Metal (Profits)

The next argument is always: "What about a fiat (currency) collapse?" The reality is this: If you own shares in a real company - I'm talking about one that has a real business, with real assets, and that you've chosen based on a decent outlook for sales and profits - those shares will be correctly "revalued" on the other side of that currency collapse.

Granted, it might take some time, which is why you want financially solid firms that pay dividends. They will adjust and send you cash in whatever the new currency is.

Before you dismiss this, I suggest that you read about how wealthy Europeans survived the 20th century, when there was a currency collapse in Germany in the 1920s and an implosion of the whole Weimar Republic in the 1930s.

The investment strategies that worked during similarly challenging stretches back then should work this time, too.

Action to Take: If you would like some additional insights on strategies for investing in silver, take some time to peruse some of Money Morning's recent research reports on this very topic.

Here are just a few, including a few stories written by some of Money Morning's other columnists:

We've also dealt in depth with other metals:

  • If you're a newcomer who's interested in gold, Money Morning also recently published a special-report primer on gold that's titled (appropriately enough): Special Report: How to Buy Gold.
  • Colleague Martin Hutchinson, a former merchant banker himself, took a look at platinum in the recent Money Morning report: How to Profit From the Metal That's More Precious Than Gold.
  • Finally, for investors who like exchange-traded securities, The Financial Times just reported that physical-metal "exchange-traded commodities" (ETCs) are on the way.

[Editor's Note: If there's one thing top global investors understand, it's that you have to "follow the money" to reap the benefits of the best profit opportunities that are available at any one time. Money flows point out the next profit opportunities. Sometimes that means "following the money" from one sector to the next. Other times that means moving from one geographic market to another.

To make those moves successfully, investors need a compass or, better yet, a guide. And successful investors will tell you, one of the best guides out there is The Money Map Report.

This monthly advisory service - an affiliate of Money Morning - employs many of the same experts whose columns you read here each day. The Money Map Report is straightforward research and investment analysis. Our writers use proprietary money-flow indicators to identify and isolate the most timely profit opportunities you'll find anywhere. For more information about The Money Map Report, please click here.]

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