Paper & Physical

When investing in gold, you can basically choose between paper gold and physical gold.

When you prefer ‘paper gold’ then Gold mining stocks and gold ETF’s are in play.

There is actually a third option, gold futures, but I advise only experienced investors to consider it.

If you are looking for the real thing and want to buy physical gold, then you can choose between

  • Bullions
  • Coins

Now, you might think it’s not that important, when the gold price rises, so do the stocks of gold mining companies. Why should I care what to buy?

Well, as always what seems clear prima vista turns out a little different when closely inspected. There are in fact differences in the performance of physical gold and gold stocks.

Historically, mining stocks have tended to outperform the physical gold during periods of rising global business activity, where they can benefit from the stronger performance of equities generally.

But when it comes to economic contraction as it happened during the debt crisis in Europe or the financial crisis in the US, physical gold is performing much better than mining stocks.

In plus, when investing in gold mining stocks or other paper gold like Gold ETF, you’re not just exposed to the gold price, but on the business risk of gold mining companies. The classical risk is the exploration risk. This is simply the risk that the material a mining company is looking for isn’t there.

An overview of gold mining companies is just a click away.

When asked, why I prefer physical gold over paper gold, I have two points:

  1. I see gold as a hedge against market turbulences and the central banks tireless printing of new paper money.
  2. Physical gold is easy to buy, while to find the best mining stock requires some research and I am still exposed to the business risk.

Where you should buy your physical gold, is not my intention to tell you. Anyway, you don’t have fly to Istanbul for that, there are many online gold shops to consider. Prices and VAT are crucial to check first. I made a good experience with proaurum.de and bullionvault.com

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A strategy on how to invest in 2016 is coming up in the next chapter: http://www.theleader.ro/stocks-strategy-i/

 

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