Digging for Opportunity in Precious Metals, Part 2

VANCOUVER ( Bullions Bull Canada) -- Part 1 of this three-part series identified the basic premise of successful investing ("buy low/sell high"), and then explained both empirically and as a study in psychology how/why most investors violate this Golden Rule with their investing.

Readers were introduced to the Contrarian paradigm of investing. It was then shown how adopting this Contrarian perspective offered investors the only realistic possibility of buying low and selling high on a potentially consistent basis.

The first part of this series then concluded by explaining what makes gold and silver mining companies a Contrarian's dream: a "low tide" sector currently bereft of any investment capital that despite its unloved status has a 12-year bull market behind it.

The obvious inference here is if a sector at "low tide" can have a 12-year rising trend behind it, imagine where it will go when the tide finally comes in. Part II will illustrate how/why precious metals and precious metals miners have the most-favorable fundamentals of any sector going forward.

There are far too many bullish fundamentals backing gold and silver to merely list them all. Readers interested in why the metals' price must rise have plenty of past commentaries from which to choose, beginning with The Three Legs of the Precious Metals Bull .

When one speaks of any commodit -producer "leveraging the gains" in price for the commodity they produce over time, this notion is not a mere suggestion, theory or conventional wisdom. This is simple arithmetic , and so, just as 2+2=4, it must be true. An easy, hypothetical example demonstrates this concept in tautological terms.

An investor enters the market with a specific quantity of capital to invest. The investor wishes to position his capital in the precious metals sector. However, he is torn between investing in bullion or the miners, so he puts half into each. For simplicity, I will use a starting price of $500/oz per gold (the principle is true with respect to any numerical value).

Making things even simpler, there is only one gold miner in which investors can purchase shares and it costs this miner $400/oz for each ounce of gold it digs out of the ground and then processes.