In the last few days, we’ve learned that some of the most famous investors in the world – including John Paulson and George Soros — are currently ignoring or selling gold bullion in order to buy gold stocks.
Plenty of anti-gold investors proclaimed an end to the bull gold market when Soros decided to liquidate plenty of his gold and silver holdings much earlier this year. What most forget is that he simply moved his money into gold mining stocks instead.
I’ve made it no secret to those who’ve read our gold course that I’m not a fan of gold stocks for most portfolios. I’m a bullion investor. Gold stocks are riskier than gold, are more susceptible to stock market ups and downs, and can go bankrupt — physical gold can’t.
The Case for Buying Gold Stocks
Still, there’s something to be said for those who invest in gold stocks right now. Let’s look at their case.
- Stocks Are Cheap. As Casey Research has reported multiple times over the last few weeks, gold stocks, compared to gold, are relatively “cheap”. If gold keeps going up, it only makes sense that gold stocks will follow suit.
- Stocks Outperform. Stocks almost always have more upside. If you make money with an investment, you’ll make more buying stocks than the actual bullion itself.
Of course, all of this comes with certain built-in costs, as explained below.
The Case Against Buying Gold Stocks
- Stocks Can Fail. Gold coins have never filed bankruptcy. Plenty of gold mining companies have.
- Stocks Are Volatile. Gold prices are volatile, of course, but stocks are volatile in another way — in accordance with stock market dips and trends, as well as gold itself. If you’re trying to fight stock market volatility in your portfolio, gold itself will do a better, more secure job most likely.
- Stocks Are Iffy. Some stocks win, some stocks lose. This is another layer of uncertainty. This means that even if gold stays in a bull market, you could lose money if you buy the wrong gold stocks. This is exponentially more true for small “penny” or “junior” mining stocks.’
Should You Buy Gold Stocks?
This isn’t to say gold stocks are bad buys. They could be fantastic investments, and there’s even a good chance that they’ll outperform gold itself. Still, I’m staying with physical bullion. There’s simply more safety, the right kind of volatility, and more certainty. And that’s good enough for me.
By the way, click here to check out our new website at Safe Haven Reports. It’ll help you beat the recession and retire early — as well as be in a better position for if — or when — a recovery finally occurs.
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