Gold stocks vs. Physical gold

by IRA Rollover in Gold IRA, Gold Stocks Vs Physical Gold with Comments Off on Gold stocks vs. Physical gold

If you’ve decided to invest in gold you’re now confronted with the question of gold stocks vs. physical gold.  Which one is right for you?

What are Gold Stocks?

Buying gold stocks is much like buying shares in any other stock.  You buy gold stocks through a broker just as you would purchase stocks in any other company.  This gives you partial ownership in a company that develops mines, recovers gold, or refines it.  The value of your gold stocks is not tied to the spot price of gold or the actual market value of gold but depend on the profits of the company in which you’ve invested.

Just like any other stock, you receive dividends on the profits or take a loss when it doesn’t do well. Some call gold stocks “paper gold”.  Gold stocks can add value to your portfolio but, like any other business, you are wagering that the company will do well and increase your own wealth.

You should consider the difference between paper gold and physical gold before you decide where to invest your hard earned money.

buy physical gold

Gold Stocks vs. Physical Gold

Gold stocks can’t be lost or stolen like physical gold but it can lose its value depending on how the company prospers.  If your mining company goes out of business or suffers from a natural disaster or labor dispute, your gold stocks will lose value as the company does.  Physical gold can be kept in a secure location such as a fireproof home safe or a box at your bank.  If you buy physical gold for an IRA it is stored in federally approved vaults that are safe and secure.

Gold stocks are very affordable for most people, sometimes less than $100 per share.  If you are experienced at trading you can time the market so that you buy low then sell at a nice profit.  The problem is that no matter how much money you make, all you have is paper.  When you buy gold stocks you buy paper and are compensated with paper.  Paper money can be worth a lot or worth nothing, depending on how the economy is doing.

Physical gold is a real, tangible asset that you can hold in your hand and its value does not depend on how well the market is doing.  Gold will buy the same goods today that it did a century ago.  You would need one paper dollar today to buy the candy bar that cost a 15¢ in twenty years ago!

Won’t I Make Money with Gold Stocks?

Of course you can make money with gold stocks!  However, it is a riskier investment than physical gold and the returns are less.

Between 2006 and 2011 gold bullion gained 120% while mining company stocks only gained 55%-70% in value.  When the market spiraled down in 2008 most stocks lost value but gold stayed above its 2006 levels.  The gap between stocks and gold bullion was as much as 80% between 2008 and 2009.  As you can see, you can make money when you buy gold stocks but these paper assets just don’t gain or retain the value that gold does.

Liquidity Issues

Another thing to consider is liquidity.  If you want to get out of gold stocks or put your wealth in a safer, less volatile place than the stock market it can take quite a while to sell gold stocks.  Most of the investors who sell stocks, including gold stocks, do so when they become afraid of the market’s ups and downs.  All that selling makes it difficult to sell your own stocks.

Physical gold has always sold quickly.  If you want to liquidate the gold that you are holding or storing you can usually do so immediately.  If the economy collapses, you can use your gold to buy goods but no one will trade goods for your paper stock certificates.

Which Investment is Right for Me? 

While there is a big difference between paper gold and physical gold, every investor has his or her own unique circumstances.  Gold stocks may be the right thing for you at this time but remember the old adage about not putting all your eggs in one basket.  Gold stocks can make you a tidy profit in the short term but you should balance those stocks with other investments.  Buying real gold that you can hold or store is also a good investment.  No one has ever made a bad investment when they bought real gold nor have they lost money because its value declined.  When it comes to gold stocks vs. physical gold, you may well decide that real gold should make up the bulk of your precious metals investments.

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