The propaganda promoting investment in gold mines tries to convince us that we could double or triple the returns.

December 29, 2010 – The propaganda promoting investment in gold mines tries to convince us that we could double or triple the returns we get from gold coins. As proof they show us charts of one or two of the major producers proving just such stellar performance between 2000 and 2005. But that is just a tiny piece of the picture.

If we extend those charts through the second half of the decade the situation reverses with gold far outperforming the same mines. One of the reasons for that is heavy investment in mines dilutes profits faster than increasing gold prices can offset them. And mine stocks are subject to all of the uncertainties of the whole equity market. In fact, during the market crash of Q4 1987 mining stocks fell even faster than equities even though gold continued to rise.

It is true that vast sums of profit can be realized by investing in new mines, but the risk is even greater. Less than one in ten discoveries actually become productive operations. Those that do produce often fall far short of productive yields. And mines are more subject to political instability and currency fluctuations than any other industry.

Even if all else is right, a decline in gold price will be multiplied just the same as an increase. In short, gold mine investments can win only in a rare combination of circumstances. The mine must be productive and have substantial in ground reserves, but still have sufficient headroom for increased investor equity. Gold must be in a prolonged bull mode. The general equity market must be stable and growing. The country where the mine is located must have a stable investor- friendly government and an economy that is under control. And that perfect mine must somehow not attract the attention of too many investors.

In comparison, gold coins are a far more appealing investment.

Kevin Johnson

Senior Staff Writer – GoldCoin.net