Paper Gold Stocks vs Gold Bullion: Key Differences

Gold Stock Risks

Gold stock exploration risks include finding no gold or not enough high grade gold to be profitable over the short, medium, or long term.

Gold mining stock feasibility risks include gold mining companies which may have discovered gold, yet at current gold spot prices said gold in the ground may be uneconomical to mine profitably given the costs associated.

Gold mining stock management risks include any mining company as they often face large upfront costs to employ directors, explorers, and miners. As well as ongoing operating costs to mine gold. Often poor gold mining stock company  management can destroy what might otherwise be a viable asset under better stewards and leadership.

Gold stocks have ongoing gold pricing risks as gold prices moves up and down, individual gold mining companies can either remain flat, experience positive leverage-to-price increases, or go out of business if gold prices fall too low.

Gold mining stocks have geopolitical risks as government regimes and political situations can make gold mining become unstable, leading to unreasonable demands from a government, the potential confiscation and or nationalization of gold mine assets, and ever increasing royalty fees hurting gold stock profitability ultimately.

Gold mining equities can face financing risks during bear markets and even bull markets, as banks often refuse to finance operations for various reasons. Too if the share prices of gold mining companies is so low, raising additional equity becomes extremely dilutive to existing gold mining stock shareholders.

Gold mining share environmental risks are multi variant as gold mining companies often work in remote areas that are ecologically sensitive (e.g. Amazon in Brazil). As well, gold mining dam and leaching pool failures can and do happen, resulting in serious environmental degradation, possible exorbitant fines, and lawsuit litigation costs eating into potential profits.

Gold mining shares often have extreme price volatility with even bigger moves up or down when compared to general  stock market volatility. As well, most US traded stocks and gold mining shares often do not correlate in price direction either. Over the last 5 years the S&P 500 stock index has increased substantially while the gold HUI mining stock index has simultaneously fallen dramatically.

Gold mining stocks have limited liquidity as they are only traded during market trading hours, as well smaller gold mining stocks can be both difficult to buy or sell during open market trading hours. Small gold mining stocks can at times also be impossible to sell when there are not substantial bidders for the shares you are selling.

Publicly traded gold mining stocks and their companies often face efficiency troubles with gold mine engineering problems such as mine collapses, mill processing problems, local gold miner labour strikes, increased energy costs or inputs, and political backlashes with new government political regimes.

Gold mining companies often shortsightedly lock in poor gold price agreements that can end up destroying gold stock shareholder value if and when major changes in gold mining operating costs related to gold bullion prices occur.

Unlike gold bullion, gold mines cannot be easily moved and thus gold stocks face locational risks from local uprisings, potential wars, political upheavals, and natural disasters which are all common problems that gold mining companies face as they work around the world recovering gold ore from the Earth.

Gold Bullion Risks

The risk of having one’s gold bullion stolen is real even if one’s gold bullion is hidden with prudence. This risk of gold theft remains real whether or not one chooses to take direct discreet delivery, buy locally, and or have one’s gold bullion professionally vaulted in various locations.

The value of gold bullion vs fiat currencies actively used and still valued by human beings today is an ongoing ever changing phenomenon. Monetary, government, and fiscal policies are a major contributor to the fluctuation in fiat currency values and hence gold bullion values simultaneously. Historically speaking, there have been times in when gold bullion rockets in value higher as monetary systems and their issued fiat currencies come under severe question.

Of course, physical gold supply demand fundamentals affect the price and availability of gold bullion around the world. It is highly possible in the future that physical gold bullion prices drive so high that acquiring reasonable amounts of gold bullion becomes unattainable for the average person as it may become simply too expensive and rare in bulk quantity. As gold mining outputs continue dropping and gold ore grades are getting lower and lower year after year, the liquid supply of available physical gold bullion to buy possibly becomes less and less.

To find a trustworthy counterparty to buy gold bullion from is not a given. Many would be gold bullion buyers have fallen prey to various bad gold industry practices over the years. Critical to know how to perform gold bullion buying due diligence, whether or not one is buying gold bullion locally or from various online gold bullion dealers.

As savvy gold bullion buyers likely know, gold futures contracts pervert the gold bullion price. Large financial institutions such as government partnered central banks, hedge funds, and large commercial banks can adversely affect the spot price of gold.

For many decades now, there have been way more gold proxy derivatives traded than physical gold bullion on a notional basis. Although there have been (e.g. gold bullion prices in the fall of 2008) and likely will again be eras when the physical gold bullion market, makes and or drives the ongoing price of gold. For now, and in general, the ongoing spot price of gold is a reflection of mostly gold derivative trading on gold futures contract exchanges (e.g. COMEX, LBMA).

Gold Stocks vs Gold Bullion Performances
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James Anderson
James Anderson
Content Director

A bullion buyer years before the 2008 Global Financial Crisis, James Anderson is a grounded precious metals researcher, content creator, and physical investment grade bullion professional. He has authored several Gold & Silver Guides and has been featured on the History Channel, Zero Hedge, Gold-Eagle, Silver Seek, Value Walk and many more. You can pick up Jame's most recent, comprehensive 200+ Page book here at SD Bullion.

Given that repressed commodity values are now near 100-year low level valuations versus large US stocks, James remains convinced investors and savers should buy and maintain a prudent physical bullion position now, before more unfunded promises debase away in the coming decades.