Gold Stocks vs Physical Gold

Gold ingot resting on a stocks and shares graph representing investment or banking

Investors seeking to build a portfolio aimed at growth and stability must make diversification a top priority. Diversification limits exposure in any single asset class and helps deliver more consistent returns over longer periods. And right now, one of the best diversification strategies available is to invest in precious metals such as silver, platinum, palladium, and especially gold.

When investors look at getting into gold, the most common options they have are gold stocks and gold bullion. While both options can provide the kind of growth and stability desired, they do not achieve these ends in the same way. Let’s examine some of the key differences between gold stocks and gold bullion.

Gold stocks

  • Represent shares in a gold mining or gold refining company
  • Value of shares depends heavily on the company’s ability to run efficiently and turn a profit
  • Value of shares may fall even if the spot price of gold rises
  • Tend to drop in value faster and farther than the spot price of gold in a downturn
  • Could lose value due to labor disputes, political unrest, nationalization of resources, and other factors unrelated to the spot price of gold
  • May pay dividends
  • Do not require storage or insurance

Physical Gold

  • Is a physical asset available in the form of coins or bars
  • May be added to Individual Retirement Accounts for growth
  • Serves as a store of value against currency depreciation and economic uncertainty
  • May be used as legal tender
  • Has no credit risk
  • May be bartered for goods or services in a crisis
  • In the form of numismatic coins, may be sold for well above face value
  • Provides investors with a hedge against stock market declines
  • May require storage fees if kept offsite

In general, the decision to purchase gold stocks or gold bullion comes down to your overall investment goals. While both types of assets help diversify your portfolio, they do so in different ways. Gold stocks are a riskier proposition by still being a paper asset, while gold bullion is considered a stable investment that is ideal for retirement funds and long-term profitability.

Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.