There’s a constant theme in the gold/silver investment circles – gold is good, silver is better, and mining companies are the best, if you want to multiply your investment. Here’s why I disagree, and why I think it might actually be the opposite.

First of all, if shit really hits the fan, you want tangible assets. Shares of any kind, mining or otherwise, are not tangibles. They are a complicated contract which depends on many things that might prove to be unreliable; for instance, the existence of stock markets of any kind. If anything is nuked, you can kiss your shares goodbye.

Second, let’s assume nothing is nuked, but the economy collapses, and the fiat money system with it. Let’s assume those central banks buying all the gold last year knew what they were doing and they switch to gold-based currency. If you think every country won’t immediately nationalise gold mines, you’re incredibly naive. Shareholders won’t be compensated and will lose their investment. It’s unlikely that the countries will try to confiscate their citizens’ gold, because that would be unpopular in times when their popularity will be at all times low. Rather, people will rush to exchange gold for the gold-backed currency at those bitcoin-like rates. It’s a different matter with the mines, as the source of gold, and all the countries will do the best they can to establish control over those immediately.

As for silver, unlike gold it’s about 50% industrial metal, which is usually seen as a plus, until you realise that global industry is on a downward trajectory and the industrial use of silver might diminish. Also, the currency backing is very unlikely to be bimetal; it will be gold only. What will happen to the price of silver, I don’t know, but I’m betting primarily on gold. I’m uncertain enough about the outcome to have a decent amount of silver as well, but this is mostly insurance in case I’m wrong.

This line of thinking is full of variables, so take it for what it is – a personal estimate of probabilities.

ps. This is not my main reason, but if we assume that the spot price of the precious metals is controlled by the paper market and pressured downwards, the lower limit of the price will be the cost of extraction from the ground, and the upper limit won’t be much higher than that, which means that the miners will always be unprofitable, since they can’t do what everybody else does: calculate your cost, add a reasonable profit margin and then offer your stuff on the market. Since they don’t control the price, they are always kept on the bleeding edge of bankruptcy, with the goal of creating the impression that the precious metals aren’t all that precious if there’s no money there. If what they are mining ever becomes profitable, it will happen because the controllers lost control, and they will then likely try to regain it by outright nationalizing the mines.