hold gold or gold miners, page-31

Forro, bullion outperforms the stocks in the long run unless you've got a lot of experience and an excellent stock picker. Steve Saville sums it up nicely in this recent interview:

http://www.dollarvigilante.com/blog/2012/1/5/an-exclusive-interview-with-steven-saville-of-the-speculativ.html

"The idea that many people have that the average gold stock offers upside leverage to the gold price is wrong. At least, it's wrong when taking a long-term perspective.

The idea is based on the simplistic notion that if, for example, the gold price is $1000 and a company's cost of production is $800 then an increase in the gold price of only 10% will lead to a 50% increase in the company's profit margin.

The real world doesn't work that way. Firstly, mining costs rise in response to monetary inflation. Secondly, even well-managed mining companies suffer setbacks due to unexpected political, geological and/or environmental issues.

Thirdly, most mining companies are not well managed, so errors tend to be made that reduce shareholder value.

Fourthly, most listed mining companies, especially the small ones, continually increase their share counts by doing equity financings and doling out options.

Fifthly and perhaps most importantly, gold producers have to spend a lot of money every year to prevent their reserve base from diminishing.

The combination of these factors caused the average gold stock to underperform gold bullion over the course of the 1960s-1970s gold bull market, and the same thing is happening this time around."