Because gold stocks don't mimic the prices of gold bullion, they provide less diversification to your investment portfolio. Therefore, if the stock market collapses, your investment in a mining company or gold manufacturer is likely to also be affected, while the price of physical gold will increase. Every investment has advantages and disadvantages. If you are opposed to having physical gold, buying shares in a gold mining company may be a safer alternative.
. Finally, if your primary interest is to use leverage to benefit from rising gold prices, the futures market may be your answer, but keep in mind that any holding based on leverage involves significant risk. Ultimately, the choice to buy physical gold or gold stocks is up to you. In fact, if you look at longer time horizons, such as over the past 30 years, the Dow Jones industrial average, a good representation of the stock market in general, has significantly surpassed gold.
And while the stock market has its ups and downs, investing in physical gold can involve many unexpected costs and considerations, such as insurance and safe storage. Investing in gold mutual funds means that you own shares in several gold-related assets, such as many companies that mine or process gold, but you don't own real gold or individual stocks. Exchange-traded funds or gold mutual funds are more liquid than holding physical gold and offer a level of diversification that is not offered by a single stock. ETFs and mutual funds also come with certain legal protections.
Please note that some funds will have management fees. Learn more about ETFs and mutual funds. A gold futures contract is an agreement to buy or sell a certain amount of gold at a later date. The contract itself is what is traded on an exchange.
Gold futures are more liquid than physical gold and have no management fees, although brokerage firms may charge a trading fee (also called a commission) per contract. Keep in mind that trading futures contracts involves a great deal of risk and is not an appropriate investment option for an inexperienced investor. The amount of money you can lose with these investments may exceed your original investment. If you decide that investing in physical gold is right for you, here are some things to consider:.
Technically, gold certificates are not stocks, but they represent an investment in gold that does not include physical possession of gold. Gold stocks work like other stocks; basically, you invest in companies that mine or hold gold on your behalf. Physical gold often rises in value when the stock market is doing poorly, but the same is not the case with gold stocks. Whether you choose gold, stocks or physical gold depends in part on how you view the current state of the markets and the economy.
You know you want to buy gold to help diversify your portfolio, but you're not sure if you should buy gold stocks or physical gold. Owning stocks in a gold mining company or a gold ETF exposes you to the gold industry and, since gold doesn't necessarily move in conjunction with the stock market, it can help to further diversify your shares. Another potential disadvantage of gold stocks, ETFs, and mutual funds is that you don't own physical gold. If you buy gold from a non-reputable dealer or on a third-party website, such as eBay, you must ensure that your purchase will be accepted in your IRA before buying.
While owning gold sounds great and can even be considered responsible during a stock market crash, investing in gold comes with some unique challenges and doesn't always turn out as you might expect. However, there is much more at stake in terms of whether you should invest in physical gold or in gold stocks. Gold traders usually charge more than the “spot” price of gold, or the price at which it is listed on a commodity exchange. If gold rises, but the company is poorly managed or runs out of land to extract, its shares could fall.
If you don't want to mess with a precious metals IRA that requires storing physical gold, a gold ETF is an excellent option that generally mimics the price of gold. The market price of a gold stock does not automatically rise and fall along with the market price of physical gold. The creation of a gold coin sealed with a seal seemed to be the answer, since gold jewelry was already widely accepted and recognized in various corners of the earth. .