We begin with a broad generalization.
You buy and own physical gold bullion (ie: gold coins or gold bars) as a safe haven bedrock asset, for the long term. Perhaps you speculate in the short to medium term using derivatives (e.g. ETFs, futures contracts, etc.) if you don’t mind stomaching the risks and carry costs associated.
Investors often also buy and speculate in gold mining stocks for short, medium, and at times long term profits as well. Many notable names do so, we’ll likely mention a few later on.
Trouble is, one asset class tends to do better than the other at various times. One requires markets to function efficiently, the other does not require any financial markets to work to maintain it value among the world.
Here we will examine some past performances of gold bullion vs gold stocks as well as cover key differences between the two.
In the grand scope of total global financial assets, dwarfed are the combined values of both the total estimated above ground physical gold supply and all gold mining shares publicly traded compared to total: global real estate, private and public lands, private enterprises, non precious metal currencies, total listed stocks globally, and aggregate bond markets.
This is an ever enduring debate on which to choose, gun to your head, one or the other.
Gold bullion vs gold stock allocations debates will go on, but big picture perspective is required to begin this discussion intelligently. The combination of the entire two gold asset classes likely only represents low single digit percentages when measuring total global wealth vs gold investments and physical holdings worldwide.
Here we will attempt to point out the key differences between these two relatively small distinct asset classes, and take a long term view of their relative performances versus one another.
Barring the outlawing of either asset class (e.g. 1933 Gold nationalization in the USA, various government gold mine nationalizations), this discussion pitting one vs the other will likely rage onwards and will certainly not be settled here.
Yet there are some interesting past trends during this full fiat currency era which could possibly help investors know past performances of one versus the other: before, during, and after the top in precious metal prices past.
When you look across the wide spectrum of various financial media commentators today, we maintain the larger percentage or population of people in either of the two financial media camps (gold stocks vs gold bullion) are mostly found in the gold stock side and paper asset arena.
Gold mining interests tend to have bigger marketing budgets and thus you will likely hear and or be exposed to their sales pitch more often. Rare if ever, do you find a low profit margin, high volume bullion dealer speaking nor even ever advertising on the Bloombergs, CNBC, and or the Fox Business News broadcasters of the world.
Of course, there are various high profit margin scammy gold dealers who pitch products on those aforementioned medias. Thus differentiating between honest bullion dealers and high profit margin versions is key when buying bullion intelligently with success.
Our Own Bullion Bias is Inherent to Our Business Model
Of course we the authors of this article, we are obviously biased to gold bullion over most gold stocks, as we operate and maintain a high volume bullion dealership ourselves.
We buy and sell bullion inventory, while maintaining our business model through high dollar transactions, often making mere basis points (or fractional percentages) of profit when customers sell gold bullion to us and or they buy gold bullion from us.
We specifically set out in 2012, to offer the general investing public popular gold bullion products at often the lowest prices for real reasons and motives. We ourselves believe in bullion first as the foundation in any prudent precious metal allocation, especially today.
Yet over the years we have developed respect and relationships with various high quality gold mining analysts and successful gold mining investors (e.g. Eric Sprott, Dave Morgan, Dave Kranzler, Christopher Aaron).
We fully understand the gold miners can ‘give you leverage’ argument.
But of course ‘the rub’ is in the details of such assumptions.
One must be able to (#1) pick both the right gold miners and (#2) be invested in quality undervalued gold miners ahead of the (#3) right times to outperform gold bullion prices and values with choice gold mining stock positions.
Perhaps a mix of both is best for gold bulls.
A core position of gold bullion for the long term, with a smaller speculative position in higher to lower sized gold mining stocks could possibly give the best all around risk reward exposure overall.
Of course there are various camps that also simply choose one over the other.
In whatever we choose, knowing key differences between gold bullion or gold stocks is important. Here we will list a critical few.