Physical Gold vs Stocks: Which Is The Better Investment

Investing in precious metals has always been a common theme for diversifying portfolios. It’s become especially prevalent in times of inflation and when the economy tends to go a little haywire. For instance, wars, times of economic turmoil, and geopolitical instability can make investors a little bit nervous. That’s understandable. So, to hedge their investments a little bit they might decide to invest in precious metals. Precious metals such as gold, silver, platinum, and palladium all have intrinsic value. They typically retain value even as the dollar loses its spending power and many of these metals are in high demand across berries industries. Platinum and silver, for instance, are used quite a bit in automobile and electronics manufacturing. But there’s one precious metal that catches investors’ eyes quite often: gold. Whether it’s physical gold or paper gold, a gold investment can be a great way to hedge against inflation and add a little bit of diversity to your investment portfolio. But which way do you go? Do you get physical gold in the form of bars and bullion? Or would you be better served by an exchange traded fund or mining future? In this article, we’ll break down the pros and cons of both approaches to help you decide which type of gold investment is right for you.

Benefits of Gold Stocks

Physical gold is a fantastic investment for some investors, but others might prefer paper gold, or gold stocks. Most of the time, you’ll find paper gold available as ETFs, futures, or options. Exchange traded funds are the most popular of these. The primary benefit of these is the ability to invest in gold without actually owning physical gold. Not everybody has the space for gold and sometimes it can become cumbersome to store it. It’s also ideal for investing smaller amounts in gold. That way, you can get exposure to the asset and take advantage of the diversification without breaking the bank (should funds be limited, of course). Gold futures are also beneficial because they lock in a future gold price. Ultimately, your investment goals should drive whether or not you choose to purchase stocks but they offer plenty of value for investing in gold.

Benefits of Physical Gold

When you decide to invest in physical gold, you open up a plethora of fantastic options. Gold bars, bullion, coins, and jewelry are all viable physical gold options. Gold bars and bouillon are going to be the most common types of physical gold in which to invest. Jewelry doesn’t offer much in the way of advantages, but coins can be very valuable over time and your gold bars retain their value even in times of inflation. On the plus side, gold is a very liquid commodity meaning that it’s usually pretty easy to buy and sell it. Physical gold, especially, can be bought or sold and reputable vendors. It doesn’t require a stock exchange for custodian to proctor it’s sales. That gives you a little bit more agency over controlling the buying and selling of your goal then if you were going through a brokerage firm. There are so many benefits to physical gold, making it a popular choice for everyone from new and  established investors alike.

Drawbacks of Stocks

Although they offer plenty of benefits, there are some drawbacks to investing in stocks. Depending on the market, stocks can be a little bit volatile. Then there’s the opportunity cost. While it is true that some gold ETFs can cost less than physical gold to buy in, some of them can be quite costly. Opportunity costs can be very high for gold futures and mining speculation as well. These can sometimes be prohibitive for newer investors. There’s also the fees and such associated with requiring a broker or custodian of the fund themselves. Physical gold does not require that. Ultimately, it’s up to the individual investor to decide if these cons are deal breakers or not but they are certainly something to consider when choosing your investments.

Drawbacks of Physical Gold

Physical storage can be difficult or challenging at the very least. Large quantities of physical gold will require safe storage space. For people who don’t have a lot of extra space to dedicate to physical storage, storing your golden and depository or safe vault is an option. But these come with their own opportunity costs that some investors may not wish to take on. The other drawback of storing physical gold is that it can be stolen. Thieves can target gold sometimes and simply take it if it’s not secured properly. Then, you’re out your investment as well as being the victim of a crime. Then there’s the purity of gold. Gold purity is a pretty big deal. 99.9% and 99.99% gold are the purest types of gold you can obtain. Most bars and bullion that you’re going to find of investment quality are going to fall within this range. Sometimes, however, the gold purity isn’t all it claims to be. That’s why you need to use the pinga test to ensure your goal is the highest quality. The ping test is where you hit the gold to determine its purity. If the gold rings or pings then it is actually gold. If it’s hollow or sounds different, then it probably has quite a few more metals than the purity rating claims mixed in with it.

The Bottom Line

So, what’s better, physical gold or stocks such as exchange-traded funds or mining futures? Most investors tend to agree that keeping 10% of your portfolio as gold or other precious metals is usually a good idea. However, going higher than that or getting a little crazy with your investments might not be in your best interest. If you’re going to go with physical gold, the best bet is a certified gold bar or two to start building your investment. For gold stocks, a gold exchange traded fund is probably going to offer the lowest cost of admission/opportunity costs, and possibly be a bit of a better hedge depending on your investment strategies. Ultimately, whether you choose physical or paper gold for your investments is going to be up to you and you should always do plenty of research and speak with your financial advisor before putting any money into precious metals.


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