Physical Precious Metals Vs Mining Stocks

Money Metals Exchange - When investors first become interested in the precious metals, they may be drawn to invest in mining stocks.

The allure of making several times your money on an exploration company that hits a big strike can be tempting. Yes, a gold-silver producer (or an exploration stock) can sport larger gains during a bull run than the price of the underlying metal itself. This is part of a trade-off, because mining operations face all sorts of unique risks.

When you hold physical gold and silver, the price of the metal must go higher than what you paid for you to have profits on paper. And those profits would be no more or less than the actual rise in metals.

Mining Companies Face Management Risk, Political Risk, and More

A mining company's stock price can be hurt by a management which pays itself too much or doesn't control operating costs. Natural disasters like floods, rock falls, or worker fatalities inside a mine shaft can cut into profits (and shareholder confidence).

Unexpected tax increases like the ones Mexico imposed last year on miners have been hard on producers. And it's even more difficult for explorers, who by definition don't show a profit until they either sell a deposit or somehow put it into production.

And mining companies face other political risks as well.

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