Until recently, it’s been tough to be a precious metals investor. You always have a bit of a Chicken Little feeling about you, waiting for the sky to fall. It certainly hasn’t been profitable. If you were lucky, you might have gotten a small dividend while you waited along with a stagnant share price. If you weren’t lucky, you probably watched as your dividend was cut and the share price continuously drifted lower.
Finally, your fortunes have changed, all you gold bugs out there. If you were really patient and continued to add to your positions in producers while the gold market was in the dumps you would be sitting on a pretty good return at the moment. So, many stocks that have been out of favour for years are now up 200-300%. It has been a long, hard wait but your time has finally come. The question now is whether you should hold onto your hard-earned gains or sell into the strength.
Luckily the answer is easy: sell at least half of your holdings in any gold producers that you own. The gold market can be fickle. Any gains you have acquired can be lost in a heartbeat. Take a look back at every chart of each producer on the Toronto stock exchange and you will see that there are spikes of activity with sharp downturns in the share prices when the gold fever ended.
Let’s take a look at two precious metals producers, Agnico Eagle Mines (TSX:AEM)(NYSE:AEM) and SSR Mining (TSX:SSRM)(NASDAQ:SSRM). If you had purchased shares of these companies during the downturn in the gold market five years ago, you would now be sitting on some excellent gains.
Both of these stocks remain excellent producers, so I would definitely keep a portion of your holdings. Agnico Eagle’s net income increased by 33% year over year as reported in its second-quarter results, and SSRM had a huge increase in net income in the first quarter of 2019 as compared to a loss in the same quarter a year earlier. Given the huge rise in precious metals prices this year, you can bet that these companies will have excellent results for the remainder of 2019.
In the case of Agnico Eagle, imagine you had an average cost basis of around $40, assuming that you had continued to buy shares as they remained in the $25-$50 range for most of the time between 2014 and 2016. With the share price currently sitting at just under $80, you would now be able to get most, if not all, of your money back if you were to sell half your shares.
The same is true, only slightly better, for SSRM. In its case, if you had bought shares between 2014 and 2016 you could have an average cost of about $8 a share. With the current share price at about $23 a share, selling half your holding will give you all your money back and a decent gain on top of your returned capital as well.
This is especially true since neither of these companies provides very much, if any, income to investors. SSRM does not pay a dividend, and Agnico Eagle’s less than 1% payout is not exactly going to provide you with mountains of cash. Your best bet is to get back your original capital and let the rest ride.
Get your money back from gold stocks if you can
I do not recommend selling all of your gold holdings. With the crazy state of the world, especially in regards to the lack of confidence, that is no doubt building towards fiat currencies, you should probably hold onto some of your gold holdings. There is no limit to the real value of precious metals, so you should be prepared to capitalize if they were to continue to rise.
But I do recommend, if possible, getting your original capital back from gold miners while the getting is good. Gold may continue to go up, but trade worries could be resolved quickly as well. All those gains could be lost in an instant, especially in the case of dividend-lacking investments like SSRM. Be smart and lock in the gains you have in your precious metals holdings.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Kris Knutson has no position in any of the stocks mentioned.