Should You Invest in Physical Gold or Mining Stocks?

As we continue to see forecasts of a weaker long-term economy, more and more people are turning to gold and precious metal investing to offset potential losses in the stock market. While the most obvious choice for many investors is to take physical possession of bullion, it’s far from the only way – and in some cases, it’s not even the most profitable way.

It’s important to consider the advantages and disadvantages of physical gold versus investing in mining stocks. You may find that mining stocks are the ideal investment vehicle to protect and grow your investments.

Why Do People Invest in Physical Gold?

For the most part, investing in physical metals is done as a hedge against severe economic damage, particularly when the stock market is volatile and inflation increases. The solid nature of the metal makes it easy to transport and trade (as well as, unfortunately, to steal) so metals are useful in circumstances where other investment materials are not as liquid. Precious metal trading makes up a large part of the metals trade, and is the most commonly thought of option when precious metals investing is considered.

A far safer option is investing in allocated metal, which then removes from the investor the worry concerning protection of the physical metal. Allocated bullion gives you the right over a specific amount of gold, while not having to take possession. The gold is kept in secure vault storage until such time as the owner can take possession. This solves one of the biggest problems of dealing with physical gold—security is taken care of for you.

Gold Mining Stocks: The Pluses and Minuses

Finally, we get to investing directly in gold mining stocks. The first thing to remember is that you are not investing directly in metal, but in a company. While many mining operations have a strong history of success, newer mining operations are much riskier. Going with established players in the field may lower potential large scale profit, but they also have far lower risk, meaning that they are safer to use with investments.

Because of the nature of competition in this field, however, there is a lot more volatility, which means that there is a higher return on risk (and a higher chance of failure as well.) Many investors use a combination of direct metal holdings, allocated metal holdings, and mining stocks for different reasons—the last being the riskiest, but also potentially the most profitable.