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The Case for Bullion

By Howard Ruff
The Ruff Times
December 14th, 2006

I recently returned from the big hard-assets conference in San Francisco, and it has confirmed to me the huge portfolio mistake many gold-and-silver bugs are making. Most of them seem to be looking for the one mining company that will make them rich, and ignoring the bullion that is the basis for this future wealth. My recommended bullion dealers are bemoaning the fact that although the metals are in an obvious bull market, their phones aren't ringing. Bullion and coins aren't selling as they should, even as the metals are rising. (I have listed my recommended bullion and coin dealers in my book and The Ruff Times. I have no financial interest in these dealers).

This is despite the fact that their odds of selecting the few real winners from the literally hundreds of young mining companies, all with great stories to tell, in booths manned by articulate young men and gorgeous models, are against you.

A well-organized, relatively lower-risk portfolio should be built as follows:

A bag or two of junk silver coins (pre-1965 90% dimes, quarters and halves) as an insurance policy against the day when the world might be littered by dead paper dollars, killed by monetary inflation or big time terrorist attacks on the world's monetary system, leaving gold and silver coins as the only decent means of exchange and store of value. Some bullion coins (eagles, krugerrands, etc.), including both gold and silver, with the portfolio weighted toward about 60% silver. Some gold or silver ETF shares, weighted towards silver. Some major producers, such as Newmont (NEM) or Hecla (HL), and some gold and silver mutual funds, as listed in my new book, Ruff's Little Book of Big Fortunes in Gold And Silver (available at Amazon.com or www.rufftimes.com). Some 2nd tier producers, such as Agnico Eagle (AEM) and Cambior (CJE). Some well-run exploration and development companies (again as listed in my book or newsletter).

So, why include bullion as a base for your portfolio, instead of just mining stocks? In the best of all possible worlds, if you are lucky enough to pick a real mining stock winner, you can make a fortune. But what are the odds of picking that winner? The answer is like the blend of a elephant and a rhino "elephino, but they are heavily against you, especially if you have tried to bet on one alleged "hot exploration company that turns out to be not so hot. Diversification is a valid principle to spread your risk, and bullion or bullion coins are a necessary base.

I might suggest the Howard Ruff Dart-board Method. Pick a list of Exploration and Development companies (there's a list of the better ones in my book, and a longer, updated list in The Ruff Times), put them on a dartboard, throw darts at it and invest in ten of the holes, creating your own little mutual fund. Then watch them carefully, get rid of the non-performers, and switch your money into the winners. Your odds are also improved if you buy some of the mining-stock recommendations from one of the fine newsletter writers who specialize in analyzing mining stocks, as recommended in my book

With the above plan, well-grounded in bullion, you have diffused your risk, maintained your liquidity so you can modify your strategic balance as this bull market matures, and will profit from everything in your portfolio.

And remember, not including gold and silver in your portfolio, will be by far the biggest investment mistake you can make for the next several years.

Howard Ruff

The Ruff Times

Howard Ruff, the legendary author and advisor, has been in the public eye for more than 31 years. He is the founder and editor of The Ruff Times financial newsletter (www.rufftimes.com). Since 1995, The Ruff Times has had more than 600,000 subscribers the world's largest financial newsletter.

His new book, Ruff's Little Book of Big Fortunes in Gold and Silver, is now in print. You can order it at Amazon.com or www.rufftimes.com.

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