Investing in Gold Mining Stocks vs. Physical Gold – Which is Best?

Saving money is an important aspect of our financial goals. But these savings need to be employed well to give us returns. When investing, it is important to remember to have enough diversification of portfolio.

It’s not a good idea to keep all one’s eggs in the same basket.

When the market crashes, there should be something to turn to. Gold has always been an investment option for many. Gold in the form of bars and coins have been purchased to meet investment needs. This form of investment offers liquidity, has traditional value and can be hedged in times of uncertainty.

But there are many options in gold. Physical Gold vs. Gold Mining Stocks, which is better?

Both share Gold’s Strength

Both being gold share some of their strengths. Gold has always been in demand for its shine, and has been used in jewellery. Having said that, there are differences between the two forms.

Gold Mining Stocks – the good

When you buy mining stocks, you are investing in stocks of companies that are into the business of mining gold. It is equity. Before investing it is important to research into the fundamentals of the company, the management, ask questions that you should know the answers to, as an investor and when satisfied, give them your money. You have chosen this investment to help your money grow. They work like other stocks. The value grows with market growth. Individual performance also triggers growth. But like any other stock, they may lose their shine as well.

Gold Mining Stocks – the bad

These stocks have the same flaws that any other stock has. Market fluctuations may drive the price up or down. In addition, gold may lose its demand for various reasons due to which its mining may not be a lucrative business leading to its decline. In addition, the company you have invested in may run to into problems. In others words, these are stock options you need to exercise with caution and be ready to ride the market tide.

Physical Gold – the good

It is a liquid form of investment. Physical gold that is, its price reflects market sentiments faster than stock. Gold prices fluctuate. But since they are more sensitive, you can read the pulse and act fast. Physical gold is not subjected to the vagaries that a stock is vulnerable to. It is highly liquid. In times of need, it can be sold in exchange for cash.

Physical Gold – the bad

Its flipside is that its value tends to go down when the market is up. It may seem then to be a bad investment. Holding on too is a bad decision many of us suffer from. Dump the bad ones and move on. But it is easier said than done. Gold stocks depend on many variables and hence don’t easily fluctuate, unlike physical gold. If you are not good at timing the market which most of us are not, it is better to invest in gold stocks.

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