Gold is one of the safest investment options to protect against inflation and market crashes. With gold prices climbing after January, investors are again taking interest. Investments in physical gold and gold mining stocks are two popular ways of owning gold. There some similarities between the two, as well as differences. The question is which option is better?
Gold has a baseline value few other commodities have. Its practical value in technology, manufacturing and economics provides the precious metal a level of value stability. This means that both physical gold and gold mining stocks have the potential to recover from any economic loss incurred through inflation or hardship.
Investing in gold mining stock means you’re betting on the success of a particular company instead of gold in general. By putting your money in physical gold, you’re buying gold bullions and coins that is directly related to the health of the gold market itself. Moreover, commodity investments do not generate income.
Advantages of Gold Mining Stock over Physical Gold
The biggest advantage of gold mining stock is that it goes up with the rise in gold prices. Stock value depends on a company’s management and individual performance. This means that if you invest in the right mining stocks, they can elevate your investment portfolio much faster than physical gold prices. On the other hand, the value of physical gold depends on market sentiment following economic downturn. The appreciation in this case is constant. So, if you hold onto your physical gold for a long time and the value plummets, there isn’t the possibility of getting a quick return.
Disadvantages of Gold Mining Stocks
Choosing the right mining company to invest in is difficult. There are a lot of factors that you need to account for, making the endeavor risky. Gold prices play a smaller role in this market than with physical gold. Physical gold prices tend to stay consistent from country to country, meaning you’ll generally always know the value of your stock.
Which investment strategy is the better option will depend on several factors; namely, your financial situation. Investing in physical gold stocks is a great option if you can play the long game and are generally more conservative with your investments. You won’t see huge returns, but you will see your investments grow if you’re patient. The opposite is true if you decide to go the gold mining stock route. Prices will be more volatile, allowing for bigger losses and gains. When it comes down to it, your investment choices will depend on your investment objectives.