IS IT BETTER TO BUY GOLD BULLION OR GOLD STOCKS?

People looking to invest in gold typically have two options—investing in gold bullion or gold stocks. The two can seem similar at first glance, so it might be hard to know which investment is right for you. Let’s dig into the specifics on whether it’s better to buy gold bullion or gold stocks!

Before we get started, we need to establish the difference between bullion and stocks. Gold bullion is physical gold, whether in the form of coins or bars. Gold stocks function similarly to traditional stocks, so you are investing in a company that manufactures or mines gold.

IS IT BETTER TO BUY GOLD BULLION OR GOLD STOCKS?

It depends on your financial goals. Gold bullion will retain its inherent value, is able to be used in the event of an economic crisis, and serves as a great diversification to traditional stocks. Gold stocks, on the other hand, are dependent on more external factors than just the value of gold, but they have the chance to be extremely profitable if the company does well.

ADVANTAGES OF GOLD BULLION

RETAINS ITS INHERENT VALUE

Gold bullion will retain its inherent value. And, because you have a physical element in your possession, you will always have an asset that’s worth something, even if the price dips. Gold will almost always be used in jewelry, electronics, and manufacturing.

ABLE TO BE USED AS CURRENCY IN ECONOMIC CRISIS

If there were ever a time when traditional paper money (also known as fiat currency) becomes worthless, gold can serve as a valuable trading alternative. Gold has served as a form of currency for hundreds of years since it has an inherent value as a beautiful and functional precious metal.

Another reason investors add gold to their portfolio is because of its performance during a recession. Relying on stocks as the only investment is an issue during an economic downturn. Gold performs better when the stock market is down which has been the case in past recessions. While gold is a safe haven during an economic crisis, it also can be a safety net during a recession. 

DISADVANTAGES OF GOLD BULLION

MUST BE PHYSICALLY STORED SOMEWHERE

When you invest in physical gold, you have to store it somewhere. Whether that is in an official Gold IRA, safety deposit box, or at-home safe, your gold must be in a specific location. Depending on how much gold you own, this might be a large amount of space! Usually this also comes with associated fees.

MUST HIRE CUSTODIAN TO MANAGE GOLD IRA

If you’re incorporating gold into your retirement investment portfolio, you’ll need to have it be managed by an official custodian in order to be considered a legitimate retirement investment. Of course, this comes with associated costs.

ADVANTAGES OF GOLD STOCKS

EASILY INCORPORATED INTO EXISTING PORTFOLIO

If you already invest in other types of stocks, you can easily begin investing in the stock of a gold manufacturing or mining company.

CAN DO WELL EVEN WHEN GOLD PRICES ARE DOWN

Because gold stocks tend to mimic the trends of the stock market, not the price of gold itself, your gold stocks can do well even when the price of gold itself decreases. This could greatly benefit you if the economy or the company you invested in does really well.

DISADVANTAGES OF GOLD STOCKS

DEPENDENT ON EXTERNAL FACTORS

Like other stock investments, gold stocks are almost entirely dependent on external factors—not just the value of gold. How well your stock performs depends on the success of the company, which could be affected by personnel changes, unions, lawsuits, employee strikes, or even the weather.

FOLLOW STOCK MARKET TRENDS

One positive can be another man’s negative. Because gold stocks don’t mimic the prices of gold bullion, they provide less diversification to your investment portfolio. So, if the stock market crashes, your investment in a gold miner or manufacturer will likely suffer as well, while the price of physical gold will increase.

WHO SHOULD BUY GOLD BULLION?

If you’re looking for a stable, physical asset that doesn’t rely on the stock market then it’s best to invest in bullion products. The ideal investor of gold bullion wants something for their portfolio that operates outside of fiat currency and has a market with it’s own conditions. This investor will be looking to diversify an existing portfolio that already has standard stock options. If this sounds like you, then gold bullion is better to add to your portfolio than gold stocks. If you’re just getting started, then a great starting coin for an emerging bullion portfolio is the gold American Eagle.

WHO SHOULD BUY GOLD STOCKS?

If you’re looking for an investment that’s similar to current stocks in your portfolio, gold mining stocks are a better investment. They operate like regular stocks while giving you an opportunity to invest in the gold market. An investor in gold stocks is also looking for a more immediate return when compared to gold bullion. If this sounds like you, then gold stocks are a better option. If you’re just getting started, do research on which stocks are best for you. Investopedia has suggestions for some of the top performing gold stocks this month!