You’ve decided it’s time to add gold to your portfolio. But which one do you buy? Gold stocks, or physical gold ingots?
When it comes to buying gold bars, there are three main investment instruments: gold bullion, gold stocks and gold futures and options. When buying gold stocks or trading options, you’re actually betting on the price of gold. When buying physical gold, you’re betting on the inherent value of the yellow metal. This can make quite a large difference down the road.
In this article we’ll be covering the difference between gold ingots and stocks, and how to know which is the best asset for your portfolio.
What are gold stocks?
Gold stocks come from gold companies. This means that when you’re buying gold stock, you are buying a stake in the company, just like you would buy a stake in McDonald’s, Apple or Google. When the gold company is doing well, the price is likely to increase. When it’s not doing so well, the price is likely to decrease.
Gold companies are mainly gold mining companies, whose main business is exploring, drilling, financing and refining gold. Just like any other company, they are affected by downturns, negative publicity and can go bankrupt. This means that in general, gold stocks are more volatile than the price of gold itself.
The main advantage of buying gold stocks is that you may be able to buy shares at a low price and sell them at a higher price, turning over a profit. The barrier to entry is also lower and easier: if you’re already investing, all you need to do is open your broker platform, search for specific gold-mining companies or gold ETFs and buy the hares. An example of a gold ETF is the SPDR Gold Shares, one of the oldest gold ETFs in existence. Just like any other stock, you can buy these shares at any time during the day.
However, when buying gold stocks, you’ll need to keep into account both internal and external factors of a company. Internal factors may be the skill of the gold-mining company leadership, the staff turnover and culture management. External factors may be environmental factors, political factors or the state of the economy. Like with any other company, you are investing in the success of the business rather than the product itself.
Should I buy gold ingots?
The other option is to buy and hold real, physical gold.
Bullion gold usually comes in the form of gold ingots or gold coins. Gold ingots are regulated by the London Bullion Market Association (LBMA) and must contain 99.5% pure gold. Gold ingots in the form of bars weigh 11 to 13 kg and gold coins are composed of one “troy ounce” – around 31 grams. They are also VAT free and you only pay capital gains tax on your profit.
When it comes to buying gold, a few factors need to be taken into account. First of all, you want to purchase your gold from a legitimate gold dealer that is listed by the World Gold Council. Second of all, you’ll need to know where you want to store your gold. Many retailers offer to store your gold for a fee, or you can choose to store it in a separate safety storage facility. Thirdly, make sure you are aware of all the fees such as insurance and transaction fees. Once you fully understand the gold buying process, decide how much bullion gold you’re buying and complete the purchase.
The main advantage of holding gold ingots instead of gold stocks is that you are investing in the inherent value of gold. Gold has maintained its value throughout the centuries, and has resulted in a great investment to hedge against inflation, diversify your portfolio and hold assets outside of the international banking system. ETFs and gold stocks are an electronic book entry, whereas physical gold is the real thing!
Which one do I pick?
The truth is, a gold investment depends on what your objectives are. If you are buying a range of gold bars to preserve wealth and to diversify your portfolio, gold ingots may be more preferable. If you are buying gold in order to make a profit and get higher returns, gold mining company stocks may offer a better chance of achieving your goals.
The main advantage of buying gold ingots is that you are in complete control of your own wealth. No bankers, politicians or CEOs will have influence over your gold and you’ll be able to steer clear from volatile currency markets, stock market peaks and company troubles. The gold you buy is the gold you own. And now, thanks to low-cost and intuitive gold buying apps such as Minted, buying gold has never been cheaper or easier.
The main advantage of gold stocks is that you can invest in gold as an appreciating asset. During a downturn, the share price of the gold mining company will be lower, so you’ll be able to buy shares at a lower price and potentially sell them at a higher price later on. Just remember that when you buy gold stocks, you are not investing in the inherent value of gold, but the gold-mining company. This means you are still exposed to an unstable banking system, low interest rates and even financial collapse. An example of this is the London Gold Exchange ETF, which permanently closed for business in September 2011.
Gold should be part of every investor’s portfolio. The good news is if you’re not sure whether to buy gold ingots or stocks, there’s nothing to stop you from buying both! The most important is to be aware of the difference between two, what your own investment objectives are what processes each asset entail. If you’re interested in buying pure LBMA certified gold ingots at affordable prices, Minted’s got your back.