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Physical Gold vs. Gold Mining Shares

Physical Gold vs. Gold Mining Shares

No matter how you choose to invest, owning gold should be part of everyone's diversified portfolio. The question is whether it is better to own physical gold or to invest in gold mining companies. While owning gold mining shares can be a profitable approach to gold investment, there are many advantages to owning physical gold instead.


Unlike gold mining shares, physical gold is not a liability. No matter what happens to the economy gold will always be gold and therefore it holds an intrinsic value. Gold mining shares, on the other hand, are extremely speculative. When you own shares in a gold mining company you do not own gold. You own a piece of paper of a company that is exploring for gold and developing gold mining projects. In 2008 as the price of gold soared mining shares fell, therefore physical gold is a great hedge against the stock market. Although you have the opportunity to make a lot more money on that speculation, with that comes enormous risk. Gold mining shares are equity just like any other stock investment. They are extremely volatile and therefore do not provide the safety of physical gold. Bullion reduces risk in your long-term portfolio.


In the face of volatile markets, it can be difficult to sell you gold mining shares, especially for anything close to what you paid. Physical gold, on the other hand, is liquid and can be sold at anytime. Physical gold has a larger market size and trading volume than gold mining shares and can be accepted globally. Gold mining shares often have little value in other countries.

Real Metals Pricing

Physical gold matches the actual daily price of gold. Whether the price is high or low, physical gold is real and not dependent on a number of extraneous circumstances such as accounting issues, operational bills and liquidations. This makes physical gold much more dependable and transparent.

Independent of Company Performance

When you own physical gold you are not affected by factors that lie beyond the price of gold. Some of these factors include mine activity, operating expenses, geopolitical issues and even the performance of the company's management. If production costs and operating expenses rise, gold mining shares can fall even as the price of gold increases. This goes back to the first point where I explained that gold mining shares fell through 2008 as the price of gold rose. When you own physical gold the only concern you have is the actual price of the metal based on global supply and demand.

This is not to say that there isn't any value to owning gold mining shares. If you are an educated investor and are not risk adverse than there is a great deal of money that can be made buying and selling gold mining shares. If you are young and have years of investing in front of you it can be a worthwhile investment, but if you are looking to hedge yourself against the market than physical gold is the right choice.

Image by: Sascha Grant