ETF's May Be Hurting Direct Investment In Precious Metals Miners, Says David Morgan

Photo: ETF's May Be Hurting Direct Investment In Precious Metals Miners, Says David Morgan

Gold seems to be having a pretty good year. The price has been in a stable rising trend over the last few months, but despite this, gold equities don't seem to be offering the leverage they usually do to a positive gold price trend.

While gold miners have been in a steady uptrend, in some cases, they have underperformed the price action of gold. This has left many investors puzzled, or even frustrated, but veteran precious metals analyst David Morgan has a simple explanation. The rise of ETF's is taking money away from traditional precious investment channels.

In a recent interview with Palisade Radio David Morgan outlined why he thinks ETF's might be the reason why gold mining stocks are having a hard time doing what they have done in the past, and what might happen as a result of this phenomena. In the past investors didn't have the option of buying ETF's that hold paper contracts that represent gold, and many apparently prefer them to holding either physical gold, or shares in leading gold miners.

This preference for gold and silver ETF's isn't without risk, and if a bull market in precious metals materializes, there could be some real surprises for ETF buyers coming.

A Tight Market

There is no shortage of physical gold, but the ownership of the gold that ETF's supposedly hold isn't as straightforward as many investors may believe it to be. Jim Rickards, in addition to groups like GATA have alleged that the gold that is being traded in the futures market may be leveraged many times over. This could create a lot of confusion if true, and no one willl know how serious the situation is until it is too late.

When ETF's like GLD buy those contracts, they are probably buying into a futures market that isn't going to be stable if investors start to take physical delivery. The situation in silver is even more extreme, as silver is used in commercial applications to a much higher degree than gold. For now, the situation seems to be under control, but if it will remain that way is anyone's guess.

In the same interview David Morgan talked about the Berkshire Hathaway's attempt to buy a large amount silver, and the length of time it took to actually receive the metal that was bought. Sprott Asset Management had a similar experience with the purchase of a large amount of physical silver, and although they did get all the metal they bought, it took a while.

Where To Go?

It would appear that retail and institutional investors are favoring ETF's over miners, and this may represent a big opportunity to purchase shares in gold mining companies. The situation in the junior gold mining sector is even more extreme, and while more risky, the potential returns are much larger. If you want to learn more about what companies might be a good place invest, the upcoming Silver and Gold Summit is the place to be.

Investors like Doug Casey, David Morgan and Marin Katusa have shown they know how to find great opportunities in the precious metals sector, and make big returns. The two day Summit will be taking place on November 20th and 21st, in the heart of San Francisco. There are sure to be lots of great ideas in the air, with an all star group of investors presenting on a wide variety of topics.