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SIlver and Gold Stocks To Avoid: The Heavy Hedgers
Gold and silver stocks represent an extraordinary opportunity for future profits as we begin what surely will be a long-term bull market in precious metals. But many investors don't recognize the dangers in some established mining companies due to hedging. Hedging for miners is essnetially placing a bet on a drop in the price of the metal produced. It can be a good way to reduce the risk of a big drop in the price of gold or silver, but it can leave you in a terrible position if the price takes off - and take off is where we are right now. The world largest gold producer, Barrick Gold (ABX) has foolishly hedged over two years of their production. They may actually face financial disaster from their heavy hedging, but Wall Street hasn't yet noticed. If you own ABX, GET OUT NOW! For silver, one of the big offenders to avoid is Apex Silver Mines (SIL), which has sold short their future production. Get out of that one, too. Consider instead companies that don't hedge or hedge just a little, like GoldCorp (GG) and Newmont Mining (NEM). These companies are sitting on vast amounts of wealth and are still greatly undervalued, in my opinion. For some details, see the 2003 article (somewhat dated but still good), "The Basics of Gold Stock Investing." A more recent article offers additional reasons to avoid four other stocks. For silver stocks, stick with those that make money from increased silver prices. i prefer Silver-Wheaton (SLW) and Pan American Silver (PAAS). I've also got some SSRI, but they aren't producing silver.