Usually, when you invest in gold, you invest in ingots and you buy the precious metal directly in the form of ingots or gold coins. On the other hand, when you invest in gold stocks, you are buying a stock just like any other. Gold mining stocks are shares of a company that is engaged in gold mining. Whereas a gold exchange-traded fund (ETF) is a fund like any other ETF.
It is publicly traded. And finally, gold certificates are official documents that imply that you own gold that is not physically in your possession. The long-debated question of which is better, gold stocks or gold bars, continues. Often, gold stocks move in the same direction as gold bars, but at other times, especially when the stock market falls rapidly, the prices of gold bullion accelerate upwards.
Still, both gold options are valuable and depend on your preferences. Gold stocks tend to be more attractive to growth investors than to income investors. Gold stocks generally rise and fall with the price of gold, but there are well-managed mining companies that are profitable even when the price of gold falls. Rises in the price of gold are often magnified by gold stock prices.
A relatively small increase in the price of gold can generate significant gains in the best gold stocks, and owners of gold stocks tend to earn a much higher return on investment (ROI) than owners of physical gold. Investing in the shares of companies that extract, refine and trade gold is a much simpler proposition than buying physical gold. Since this means buying stocks from gold mining companies, you can invest using your brokerage account. You can also choose to buy gold that you can use or that someone has ever used but that has been damaged in the form of gold jewelry.
Gold stocks present a greater risk because they depend on more than just the price of gold, since technically you invest in a company and not in gold, your investment is affected by the company's success, not by gold. According to the IRS, it's not legal to store your gold IRA in your home; you can't just bury your gold in your backyard or store it safely in a safe. The SPDR Gold Shares (GLD) ETF, for example, contains physical gold and deposit receipts, and its price follows the price of physical bullion. However, there is much more at stake in terms of whether you should invest in physical gold or gold stocks.
The government is the owner of all gold coins in circulation and ends the minting of any new gold coin. Investing in gold ETFs and mutual funds can expose you to the long-term stability of gold while offering more liquidity than physical gold and more diversification than individual gold stocks. Depending on your preferences and ability to assume risk, you can choose to invest in physical gold, gold stocks, gold ETFs and mutual funds or speculative futures and options contracts. This means that the value of mutual funds and ETFs in gold may not fully match the market price of gold and that these investments may not perform as well as physical gold.
Gold stocks work like other stocks; basically, you invest in companies that mine or hold gold on your behalf. Collector coins, such as South African Krugerrands, Canadian maple leaves and American golden eagles, are the most widely available type of gold coins. Mining companies that support gold reserves also have operating costs for personnel, equipment and all phases of searching, excavating and transporting gold. Molten gold ingots are created in a mold, while minted gold ingots are poured into a long strip of metal and then cut into bars.
The VanEck Vectors Gold Miners (GDX) ETF, on the other hand, is a passively managed fund that tracks an underlying basket of stocks of gold mining and refining companies. These gold coins usually have a nominal value. Technically, you could use currency as currency, but often the value of gold itself is worth more than its face value. .