If You Own Silver, Do You Really Need Mining Stocks?

[Some thoughts about the relative merits of silver bullion and mining stocks in an investment portfolio.]

Though I still own a fair amount of gold and silver mining stocks, like many other investors, I’ve fallen out of love with them in recent years for reasons that should be obvious in the charts below.

More importantly, with the remarkable performance of silver over the last four years and again here in 2012, I’m starting to wonder whether investors need mining stocks at all.

With silver, investors have seen some remarkable gains with some equally remarkable volatility but, lately, with mining stocks, about all investors have been getting is the volatility.

It wasn’t always like this, but, as shown below using the iShares Silver Trust (SLV), Market Vectors Gold Miners ETF (GDX), and Junior Gold Miners Index (GDXJ), it’s been a dismal stretch for the mining shares and, even when they did see big gains in 2009 and 2010, they still underperformed relative to silver.

In fact, after seeing similar size losses in 2007 and 2008, from 2009 through 2012, the metal’s 180 percent gain has trounced the 40 percent increase for large cap mining stocks in the GDX ETF.

It’s even worse for the junior miners ETF since, with only three full years of data to compare, silver’s 78 percent gain over this period is far better than the 10 percent loss for GDXJ.

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