Gold Mining Stocks or Physical Gold - Which Should You Choose?

Author: Ian Davis - Bullion Manager

Published: 19 Dec 2018

Last Updated: 19 Aug 2019

Why Choose Gold At All?

If you're reading this page you are probably familiar with global geo-political events, trade wars and military occupations. Often these events promote investment in gold and push prices up, and for those already invested in the precious metal this is great! However, those on the fringes or with their wealth in the bank, the outlook may be rather bleak. If you have all your eggs in the banking system you may find the purchasing power of your savings decrease through inflation (or currency de-valuation) and this can leave you struggling through the bust periods of our capitalist system.

Gold Has a Longstanding Reputation

Gold has a reputation across the globe to protect wealth during financial catastrophe and as investors lose confidence with traditional equities they move into gold. This is of course if you don’t diversify and place your wealth outside of the banking system and financial markets. Buying and owning gold gives you access to a timeless asset that holds its purchasing power whilst most other investment products wither away during a recession. Do remember that gold can have its ups and downs, so it is best that gold forms part of a wider investment portfolio.

For years we have been preaching the benefits of gold ownership and we have even built our business around it, starting from our humble beginnings as a coin dealer! There are similarities and differences to physical gold and gold stocks and we hope the following helps you reach a decision.....

 Sovereign Stack

Gold Stocks or Gold Mining Stocks

Gold stocks are essentially shares in a mining company who either exclusively mine gold or have a significant portion of their operation in the metal. When you buy shares in these companies you are buying into the premise that the company is effective, well managed and truthful in their reporting and forecasting. There is a serious amount of trust required if you are investing your retirement nest egg or any substantial sums of money!

The value of your gold stocks are related to gold price but a number of other factors such as company health, workforce, active mines and exploration potential for new sites. This means each gold stock can be priced differently which is very different to physical gold traded at low premiums above an internationally recognised spot gold price. This means physical gold is much more stable, prices flatter and this does not change regardless of which country you reside. This means you can trade gold anywhere for almost the same value once currency fluctuations are built in.

Remember that beyond the broker or your online brokering site you are essentially investing in the company, their staff and the management board. It goes without saying people can be corrupt and fail you so if you make the wrong bet on which company to choose you could find yourself losing quite a lot of money. On the other hand, making the right choice of mining company you can see your investment grow significantly if mining operations go as planned. A second thing to consider at this point is how difficult it can be operating a mine often in third world countries due to corrupt governments or a striking workforce. When you think about it there is a quite a lot beyond your control, however, if you own physical gold you are in direct contact with your investment eliminating these problems.

I personally do not see gold mining stocks as any different to other stocks in terms of investment risk as you are betting on a company’s success. Granted mining shares increase in value during recessions as mining activities are linked to global demand for gold but you still end up with a range of companies to choose from. If you are looking to make rapid gains and a fat profit mining stocks is likely to be the better option over physical gold as physical gold ownership is more a hedge against inflation, a means to preserve wealth rather than making quick gains.

One of the benefits of investing in gold stocks is investors are paid yearly dividends where physical gold investors will not. There is even a potential that gold stocks will return dividends even during difficult times if gold price drops though this is not guaranteed and tied to many factors in the industry. Gold stock are not the only way to gain benefit from gold prices with many companies offering unallocated storage, exchange traded funds (ETF's) and even paper gold. My opinion is that none of these come close to the benefit risk balance of physical gold ownership though I am sure others will have their own views.

Some advice if you are indeed interested in gold stocks would be to identify the dominant players in the market, analyse earning, accuracy of forecasts to earnings, contribution to industry news and simply research as much as possible before making an investment. I have known friends watch a market for 2 to 3 years before making an investment and placing "fake" investments to see how their predictions turn out.

If we had a crystal ball, we could tell you which mining company to pick long term, but we don't, as does no one else. Take each piece of advice for what is (i.e. not a prediction) and make your own informed decision and if you are looking to preserve wealth and move away from currencies consider physical gold is likely your better option. You can read more about this below.....

Physical Gold Ownership

Gold is very liquid and can be cashed in quickly at any bullion dealer in the world. You can view our selling page for up to date live buy back prices. Spot gold price is internationally recognised which means you can buy and sell in any country of the world. Not only can you cash in quickly you can store large amounts of money in a very small space as gold is very dense.

Various 1 Kilo Gold Bullion Bars

Compact and Easily Stored

For example, a 1kg gold bar has measurements of roughly 80mm x 40mm x 18mm and currently we are buying these today for £36,392. It is quite easy to keep 10 or even a hundred of these in a very compact space beneath floorboards, buried in the yard or anywhere else you want to hide it. If you are not inclined to hide such large amounts of money you could take advantage of our state of the art storage facilities where we offer low priced storage in our on-site strong rooms. 

Physical gold is probably the best hedge against inflation and a market downturn we know about. Regardless of market performance and global events gold is tangible asset that has forever had a high value and its stable price makes it a safe haven for those wishing to deposit large amounts of money. 

A downside to physical gold would be that you can't make profit gains during a market upturn as prices relative to stocks will remain low. This comes back to your reason for investing as if you are trying to preserve wealth this shouldn’t be too much of a worry

We have a full page of advice dedicated to physical gold ownership if you wish to read more. 


If you are investing in anything, we do recommend you diversify. Firstly, if you are looking at precious metals, we believe physical gold ownership should come first and then if you wish to go for paper gold, ETF’s or gold mining stocks go for it!  This way you benefit during recessions and upturns and with the correct timing and exit strategy you could see yourself earning a nice profit. Understanding when to offload or buy physical gold and stocks (or ETF's) is important making sure you don’t get caught out by market trends. If you do not wish to watch the stock market every day or read financial news you might be better investing in physical gold which has a far more stable price. You will have to accept you may not make loads of money, but your wealth should be preserved should you wish to cash in sometime in the future. 

The association between stocks and gold is real and cannot be ignored though there are stark differences between the two. Your reasons for investing should lead the decision with physical gold best placed as a long-term investment whereas stocks can be played with a view to short term gains. Just remember that companies are ran by people and can be corrupt and even fail, this is not the case with physical gold. We prefer to keep our investment in our control and ours alone without involving brokers and various third parties. 

Finally, we are not financial experts and all we can do is share our experience and opinions on these matters and we recommend you speak to a financial adviser if you are looking to diversify and invest substantial money. 

Further Reading

You may wish to view all of our articles on our gold guide

You may wish to view all of our articles on our gold guide

This guide and its content is copyright of Chard (1964) Ltd - © Chard (1964) Ltd 2020. All rights reserved. Any redistribution or reproduction of part or all of the contents in any form is prohibited.

We are not financial advisers and we would always recommend that you consult with one prior to making any investment decision.

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