An often heard knock on gold and silver is that they do not pay interest. Consequently, many investors eschew the precious metals and seek to achieve asset appreciation by compounding interest, a proven path to wealth, assuming things remain normal and the interest and the funds loaned are secure. However, today “things are not normal” as the subprime mess spreads.
Cameco Corporation, which boasts of being the “world’s largest publicly traded uranium company and a growing gold producer,” has indeed been successful, so successful that it had funds to invest. Monday, however, Cameco (NYSE: CCJ) announced that funds it had invested in asset-backed commercial paper market paper were not forthcoming.
Further, according to resourceinvestor.com, other Canadian miners are exposed to the asset-backed commercial paper market and could get hit hard if banks and trusts prove unable to pay. No wonder the gold mining stocks sank as the subprime mess spread. (See the August 15 post Financial meltdown averted.) We can expect, because of the Cameco announcement, a plethora of disclosures by other mining companies as to whether or not they are exposed to similar investments.
Investors tempted to invest in gold shares instead of gold bullion or gold bullion coins, need to learn from the Cameco situation. Management can make mistakes, and gold mining shares carry risks beyond holding physical gold and silver.
Investors who like to “earn interest” need to keep in mind that interest is something you receive for doing without your money, for taking the risks of lending it. When you hold gold and silver, you are not entitled to interest because you are not doing without your money. Further, you are not taking the risks that are inherent in “interest earning” investments.