Gold Mining Stocks vs. Physical Gold – Which is Best?

Inflation is rising, countries are going bankrupt, and preparing for a market crash is becoming normal. Investing in physical gold or mining stocks is becoming popular for investors. Which one is best? Physical Gold vs. Gold Mining Stocks, who is better? We crack down on this answer and find out who rules.

If you want to protect yourself against inflation or if you want to diversify your investment portfolio so you are protected when there is a market crash, one of the best things you can do is to devote a portion of your total portfolio in gold or other precious metals. With that said, there are many ways you can go about doing this. You can actually invest in gold bullion or gold coins or you can invest in gold mining stocks.


When talking about physical gold and mining stocks, there are some obvious similarities and even some unique differences. For one, physical gold is a smart way to hedge against inflation. In other words, whatever value your investment portfolio loses because of inflation, you can recover in terms of appreciation of your gold holdings. Gold mining stocks have the potential to offer more growth compared to just gold. In many cases of a typical stock market bull run, it makes sense to focus more on stocks instead of precious metals. To be clear as to your overall strategy regarding gold mining stocks vs physical gold, you must first know your overall investment objectives. Are you looking for your investment portfolio to grow substantially over a short period of time or are you looking primarily for a hedge. Similarly, if you are considering getting into gold, why are you doing so, are you looking to actually grow the value of the gold portion of your investment portfolio or are you looking for a hedge against inflation or a market crash. Keep the following question in mind. Know your investment objectives: Growth or hedge.

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Gold’s Traditional Strength

When it comes to determining the value of investing in either gold mining stocks vs physical gold, one thing is clear. Gold has certain traditional strengths that both these investment forms share. That’s right, mining stocks and physical gold share these particular strengths. Gold’s traditional strengths are not going to change, they are: Traditional store of value, liquidity and refuge in times of economic uncertainty. Moreover, gold has a strong industrial demand and is often used for jewelry. These traditional strengths of gold never changed. Regardless of whether you deciding between gold mining stocks vs physical gold, both types of gold have this common core of strength. Now that we’ve established this traditional strength, there are particular features that are attractive to gold mining stocks that are not present in physical gold and vice versa.

Physical GoldGold Mining Stocks

  • Stable investment
  • Gold use for Retirement Fund
    • (Ie. IRA, SIPP)

  • Appreciating like stocks
  • Possibility for quicker return/loss

  • Affected when stocks strengthen

  • Risky
  • Potential for loss of capital

Gold Mining Stocks

The Advantage of Gold Mining Stocks

Gold mining stocks are not pieces of gold. When you invest in a gold mining stock, you’re not buying a position in physical gold or gold bullion or gold coins. No-you are buying shares in companies that are in the business of digging gold out of the earth. You are investing in miners, keep this in mind. When you are investing in gold mining stocks, you are investing in equities. In other words, you are investing in stocks. You are investing in particular companies. You are betting that they are well managed compared to other companies in their industry. If you make the wrong bet, your investment isn’t going to appreciate much. Why? You aren’t investing in the health of the gold market or gold in general. You have, instead, invested in the health of one particular company. The big advantage of gold mining stocks is that they appreciate like stocks. So if there is a big run up in stock values and driven by either an increase in gold prices or market shocks, gold mining stocks go up. These stocks appreciate life stocks so the appreciation can be quite significant. However, they are still stocks. And this is why many investors who want to make ‘pure gold plays’ get cold feet with gold miners. Regular company stocks appreciate in value partly due to their own individual performance and partly due to the performance of other stocks in their industry, as well as based on the health of the stock market in general. There are so many other extra considerations to keep in mind. Compare this to betting strictly on pure gold. With that said, if you pick the right mining stocks, they might appreciate much faster than other stocks and even gold metal prices.

The Disadvantages of Gold Mining Stocks

The problem with investing in gold mining stocks is that while gold shares in general tend to go up due to market sentiment, you still have to pick the right stocks. That’s right, if there is an impending markets crash or there are market shocks or inflation picks up, gold mining shares go up. However, if you really want to place a bet on gold mining shares that will continue to go up and produce the best return on investment, you basically have to play this investment the same way you would general stocks. That’s right, you still have to pick the right stocks. It makes a lot of sense to employ tried and proven stock selection methods like picking out dominant market players, selecting based on price earnings, analyzing news. In other words, you have to use the same analysis you would use when picking out shares of stock. This could be a serious disadvantage because even if you use these analytical tools, you’re not as sure that you are going to be picking the right stock. If stock investment really was just a function of looking at a broad range of data points and picking the shares that meet those data points, then there will be a lot more millionaires playing wall street than we have now. The reality is that data can only take stock picks so far. There is still a market and the market operates within its own rules and has its own trends. It’s anyone’s guess which gold mining investments are worth it in the long hall. Be that as it may, if you employ traditional stock picking techniques for picking out gold mining stocks, your chances of making the right play are higher than if you just randomly chose stocks by throwing darts at the list of gold mining stocks.

Physical Gold Investing

The Advantages of Physical Gold

Physical gold is very liquid. That’s not much of an advantage because gold mining stocks are also liquid. However, the great thing about physical gold is that it reflects the market’s sentiment against economic downturns much faster than gold mining stocks. Gold mining stocks, while they are engaged in the business of gold, they are valued differently. Why, gold miners are very different from each other. Gold mining companies differ in terms of overall company health, personnel, industry, as well as specific gold mines that they are mining. There are so many variables that among gold mining stocks that the only thing really that they have in common is that they are all involve in the business of getting physical gold out of the earth.You don’t have this variability when you are investing in physical gold. The appreciation of physical gold is more stable, more constant and it’s across the board. Why, because you’re dealing in physical gold. Gold prices are the same the world over. One borrowed gold is the same as a borrowed gold at the other side of the planet. Compare this with investing in gold mining stocks or in gold coins. There are other sources of value variation that you really cannot control and that you cannot account for. If you want to maximize the peace of mind you have regarding the value of your gold investment, it’s a good idea to invest in physical gold.This is a key distinction in determining the difference of gold mining stocks vs physical gold. The physical gold is a tremendous hedge against market trends. It’s a better hedge than gold mining stocks because the reaction you get in gold prices is clearer and more decisive when investing in physical gold.

For those that are interested in investing in physical precious metals over stocks, we recommend you take a look at our list of the top dealers in the industry. These cover options for investing through your retirement or through other means.

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The Downside of Physical Gold

The downside of physical gold is that just like other direct gold investments, it tends to get left behind when the equities market improves. When inflation takes beating or the stock market zooms to new record, the price of physical gold generally, not as an iron rule tends to go down. If you have bad market timing skills or you tend to have a buy and hold strategy, you might get left in the dust when the market improves. You might end up holding on to physical gold for too long. The great thing about gold mining stocks is that they might be able to retain their value for a longer period of time compared to physical gold. They can go up in value faster than actual physical gold given the right market conditions. Physical gold is like taking the temperature of the overall global economy. It can go up and down very-very quickly. Gold mining stocks because they are based on other variation features can take their time to reflect market conditions. As a result, you were given enough leeway in terms of valuation. You don’t necessarily get this with physical gold. Physical gold tends to zoom up and down very quickly.

Diversification is the Key

If you want to lock in on gold’s value for your investment portfolio, it’s a great idea to diversify. Not only do you diversify in terms of adding precious metal to your overall investment portfolio, you diversify in your positions of gold. You can diversify your precious metals by investing in silver, platinum, palladium, as well as gold. However, you can add another layer of diversification by buying gold stocks, silver mining stocks and platinum mining stocks. In other words, you can turn investment differences of gold mining stocks vs physical gold to your advantage because as mentioned above, these different forms of investing in gold or precious metals have their own sets of advantages and disadvantages. You can use this diversification as a hedge and actually make money through the differences.

Timing is Crucial

If you are looking to leverage the advantages of gold mining stocks vs physical gold, timing is crucial. You have to know when to hold this precious metal in a particular form. You have to know when to buy physical gold and unload physical gold. You have to know when to buy gold mining stocks and when to liquidate your positions. If you are looking to use a buy and hold strategy for physical gold, as mentioned above, you might hold on for a long period of time. You might put yourself in a position where the stock market has completely recovered and vaporized the gold appreciation value of your holdings and you might still be hanging on to physical gold. You have to remember that you have to hold your investments in varying forms and that these different forms is a form of diversification. You have to be very ready, willing, and able to change the forms of your investments so you not only preserve their overall value but also position yourself to make money on the upswings.

Diversification only works if you time it correctly because if you hang on to a particular form of investment and hang on for a long period of time, you’re not actually diversifying. In fact, you might be opening yourself up to all sorts of investment risks. You have to time the form of your diversification strategies correctly. This is easier said than done. If investors were very good at timing their entries and exits with certain investment positions, most investors would do quite well in the market. Sadly, only a small minority know how to time their investments well enough to capture the full appreciation of their positions. The good news is with gold and precious metals in general, you have a longer time frame than when diversifying with stocks or other more highly liquid investment forms.