Are Gold Stocks Better than the Physical Metal Itself
Are Gold Stocks Better than the Physical Metal Itself? I personally do not believe so, but there is a tool for every job inside of any portfolio. But let’s look at some interesting points:
1. There is no one between you and physical gold (unless you have a company store it for you)
2. It cannot disappear due to creative accounting
3. Company’s cannot mismanage it
4. Gold cannot go bankrupt like a company
He who controls the asset has the power. Consider that if you have an asset in your possession, that no one has more control than you. For that very reason alone, physical gold is better than paper. But let’s look at gold stock performance in the past compared to the Dow and physical gold.
Gold stocks do not follow the physical metal exactly. “The performance of gold stocks at the end of 1987 should serve as a reminder to investors that these issues are still stocks and vulnerable like other equities during bouts of market weakness,” said gold fund portfolio manager at United Services in San Antonio, in the Investor’s Business Daily.In October of 1987 following Black Monday the Dow lost 41%, falling from 2,746 to 1,616. During that same period gold stocks (XAU), lost 46%, falling from 157 to 84. During that same period physical gold rose over 18%.
Following these initial losses in the Dow and gold stocks, gold stocks stayed down longer than the Dow. In fact the XAU finished 1988, over one year later, virtually unchanged while the Dow recouped close to half of what it lost. Over a 26 year period the Dow fell by 10% or more over 25 times, while gold stocks fell by a larger percentage and more often.
Performance isn’t the only consideration. Gold mining companies can go bankrupt for a variety of reasons, rendering their stock worthless.
If the paper dollar fails you have something in your possession that can be bartered with or exchanged for any other currency on the planet.
Finally, physical gold is portable, therefore can go with you anywhere you want. For these reasons I like the physical metal in my portfolio over any other form of gold.
