As far as I’m concerned, there are three things you ought to be doing with your money right now…

The first is to have at least 5-10% of your portfolio invested in precious metals. (Or more, if it helps you sleep at night.) That’s gold, G-O-L-D. Or silver, S-I-L-V-E-R. Take delivery. Don’t entrust your gold and silver to somebody else. An ETF like streetTRACKS Gold (GLD: NYSE ARCA) is good for trading in your account. But it ain’t real gold. It’s a CLAIM on somebody else’s gold. And somebody else might say “no” one of these days.

This is Gold 101: For absolute monetary safety, you want real metal under your control. Remember the old expression, “Gold is money.” Some people — economists, mostly — disagree with that. OK, buy their gold. Smile. Say thank you. Walk away briskly with the gold. Don’t look back.

Here’s the second: Accumulate positions in solid, cash-rich gold miners. Sure, some of the junior mining guys are great speculations. Eventually, the really good explorers and mine developers will get bought out by the large companies. That’s how it works. Eventually. But for now, especially if you are just getting into owning gold miners, go with the ones that have large reserves, strong operations and plenty of cash flow.

Here are some of the best gold miners. Look at AngloGold Ashanti (AU: NYSE), Agnico-Eagle Mines (AEM: NYSE), Goldcorp (GG: NYSE), Kinross Gold Corp (KGC: NYSE), or Yamana Gold (AUY: NYSE).

I like all of these companies. All of them have good management, reserves, operations, technical ability, cash flow and sheets. Are there any risks? Yes, the stock prices tend to track the price for gold. So if the price of gold falls, these stocks take the hit.

Also, if the stock market has another round of selling, the gold miners may go down in the suction. That’s bad. What happens is that when the market tumbles, some players have to raise cash in a hurry. So they sell their winners, which of late have included many gold miners. Or their broker sells them out at the end of a trading session to meet a margin call. So moving down with the market is a chance we’re taking by owning shares in any stocks at all. Even owning good gold miners has risk.

The third thing you ought to do is be sure to assemble positions in good, solid energy plays. I noted above that gold is money. Let me add that energy is wealth. Really, it’s hard to do very much in this world without energy supplies. You can live in a cave and freeze your butt off, maybe. So the view from my perch is that well-run companies with energy reserves and good cash flow ought to hold up over the long term.

Until we meet again,
Byron King

April 9, 2009

Byron King

Byron King is the managing editor of Outstanding Investments and Energy & Scarcity Investor. These publications reach over 60,000 paid subscribers. He is also a contributor to the Daily Reckoning. King is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. He has conducted site visits to mineral deposits in 26 countries and deep-water oil fields in five oceans. This provides him with a unique perspective on the myriad of investment opportunities in energy and mineral exploration. He has been interviewed by dozens of major print and broadcast media outlets including The Financial Times, The Guardian, The Washington Post, MSN Money, MarketWatch, Fox Business News, and PBS Newshour.

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