With the uncertainty in today’s markets, it is more important than ever to diversify your portfolio. The best financial advisers will recommend that 5 percent of your holdings be in precious metals. That’s not to say that one should look only to gold or gold bullion. Buying into the best gold mining stocks can improve your bottom line as long as you understand the basics.
If you’re an investor who’s bullish about gold, it is hard not to find mining stocks attractive. At this time the big miners look relatively cheap, and are trading at several times their forecast earnings. If you opt for one of the about two dozen precious metals funds out there, most if not all of their money is in mining, not bullion. Of course there is risk in anything, and it is important to keep in mind that in the rare event of a market crash, mining is more volatile than bullion. Yet when gold goes up, mining stocks, or gold miners, eventually follow.
Most gold miners are severely under-owned. All of the mining shares in the world only total about $240 billion, yet less than 1% of the world’s pension funds contain gold or gold stocks in them. What does that mean? Well, when market conditions become uncertain, gold does well. Market conditions of late may persuade pension funds to double their gold, prompting a buying spree. This could mean a high demand and shortage of available shares, resulting in high dividends for investors.