Mining shares haven’t been particularly popular among investors this year. This is because they are considered to be cyclical. In other words, many experts think that they don’t do particularly well during recessions. Is it really so? Can’t they help you get rich and retire early?
Mining companies and industrials
To start with, large mining companies are highly diversified. That is, they don’t just focus on one single commodity. For example, Rio Tinto, one of the largest businesses in the sector, specialises in aluminium, copper, and iron. There is always high demand for these metals when the global economy is booming, because they are used for industrial purposes. But the demand for them is low when the levels of business activity in the real sector are low. So, in these situations such companies’ shares are really cheap.
But it’s not a good idea to buy something when it’s too expensive. So, buying industrial companies might be the best thing to do when the levels of business activity in the manufacturing sector are at their lowest. In such cases, companies have a good chance to raise their earnings in the not-so-distant future. The shares are likely to rise in value too.
Gold and silver
But there are other companies that don’t extract purely industrial metals. These are gold and silver miners. I am quite enthusiastic about the future of gold and silver. I believe that investors can greatly profit from these metals’ appreciation by buying gold and silver miners’ shares.
Why do I say so? Well, due to low interest rates and many central banks’ quantitative easing (QE) programmes, traditional fiat currencies might come under pressure. This is because a rise in money supply equals increasing inflation. However, I don’t believe this will actually happen.
For the general price level to head higher, there should be high consumer demand, but that doesn’t seem to be the case now. In fact, people don’t have much cash available to spend. But as a result of QE, many banks have got plenty of cash and will invest this money. They will also want to hedge their positions against any possible risks by buying gold. So, the Bank of America predicts that the gold price will reach $3,000 per ounce next year.
And how about silver? Well, silver prices tend to move the same way as gold. But the silver market is much smaller than the gold market, so prices are more volatile. This means that investors can get rich much faster with this metal than with gold.
Can these stocks help you get rich?
Investing in both silver and gold producers’ shares can be even more profitable than buying the precious metals themselves. Companies can also pay you dividends, whereas physical commodities can’t.
As my colleague Edward mentioned in his article, some large-cap companies specialising in the mining of gold and silver include Polymetal International, Antofagasta, and Fresnillo. The former is a pure gold miner, whereas Fresnillo focuses on silver. All of them are large enough and seem to be much safer buys than smaller companies.
Buying companies that extract gold and silver are an even better option than industrial mining businesses, I think. But there are many other ways to get rich and retire early.
