Gold Stock vs. Gold Bullion

Gold bullion, whether bars or coins, must be stored, insured and protected.

Gold bullion, whether bars or coins, must be stored, insured and protected.

The long-debated question of which is better, gold stocks or gold bullion, continues. Each offers advantages and disadvantages. Often, gold stock moves in the same direction as gold bullion, but at other times, particularly when the stock market is moving rapidly down, gold bullion prices accelerate upward. Still, both gold options are valuable and depend on your preferences.

Gold Bullion

Gold bullion is gold in its physical form; gold bars and coins are the most popular bullion options. Many serious gold investors believe the only way to own gold is to own bullion. Seeing, feeling and touching the precious metal evokes an emotional quality in some investors. However, investing in gold bullion comes with a cost. Dealers often charge premiums above the current spot., or published, price of gold. Also, you must store it somewhere safe. Gold bullion must be insured and protected against loss.

Gold Stocks

Many veteran investors prefer gold stocks to bullion. Even investing icon Warren Buffett points out that "bullion produces no income." Investing in the gold miners and dealers offers potential corporate profit opportunities. Still, the price of bullion has a strong influence on the value of a miner's or gold trader's business and therefore, stock prices increase and decrease. Historically, over the long term, solid gold mining and selling companies have produced more profitability than bullion.

Advantages of Each Option

Gold bullion is viewed as a safe investment choice, as demand for gold is often very strong, particularly when the stock and/or bond market is in a downward spiral. As governments print more money, the safety and security of gold bullion fuels increased demand. In the past few decades, growing demand from Asia and other emerging world powers has fueled gold bullion prices. Gold stocks have the opportunity to generate large profits, if the companies are smart, efficient and well-managed. When gold bullion prices rise, gold mining companies and their stock prices typically follow.

Disadvantages of Each Option

Gold bullion must be purchased from dealers, who often add premiums to their prices. It must be stored, safeguarded and insured, creating additional costs. Since gold bullion is a commodity, its value is in its rarity, with prices fluctuating by supply and demand rules. The mining companies backing up gold stocks also have operating costs for personnel, equipment and all phases of finding, digging and transporting gold. Should these operating costs, such as the cost of fuel, rise, their profitability declines, as with any corporation facing such increases. Their stock values depend on company profitability and projections of future successes.

How to Invest in Gold

Investing in gold bullion involves finding dealers who are honest, price-conscious and able to deliver the product quickly. Investors set up storage and safeguards before buying so they can immediately protect their bullion purchases. To minimize these costs, people often invest in bullion ETFs, or exchange traded funds, which are like mutual funds containing gold bullion investments only. You can purchase gold stocks through registered investment representatives, as you would buy other publicly traded stocks.


About the Author

For 34 years Bill Pirraglia served as a senior executive in the banking industry. Since 2005, he has authored articles, blog entries, tips and advice columns, SEO web copy and two published books. He specializes in personal and business finance topics, along with legal articles for clients large and small.

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