When it comes to investing in precious metals, the first thought that may come to mind is owning shares of mining companies. Many will also think of other various “paper” gold products such as gold or silver ETFs, certificates or even futures contracts.
While owning shares of a mining company may seem like a meaningful way to gain exposure to the precious metals, there are several critical issues worth consideration. There are many possible traps of buying mining stocks. After reviewing these issues, we feel you will find that physical gold or silver ownership and ownership in the shares of companies that mine these metals are two very different things.
- Counterparty risk: Owning shares of a mining company, or any company for that matter, does involve counterparty risk. Companies can and do default, declare bankruptcy, or experience issues that may be to the detriment of investors. Compare this to physical gold or silver bullion which cannot default or declare bankruptcy and which has tangible value that you can hold in your hands.
- Value: While the price of gold or silver determines what your physical gold or silver holdings may be worth, company stock may be affected by numerous other factors outside of gold or silver prices. Production quotas, management, labor issues and much more can all have an impact on the share price. What this means to you is even if gold prices are going up, the value of your investment in a mining company may not necessarily be following suit. In fact, your investment could even be losing value in spite of higher gold or silver prices.
- History: Gold and silver have been considered a reliable store of value and protector of wealth for thousands of years. The same cannot be said for mining company shares.
- Accessibility/Liquidity: However unlikely such a scenario may be, you must ask yourself what might happen if there were a significant currency, economic or geopolitical crises. Would you be able to exchange your shares for basic goods and services such as food, fuel or shelter? Not likely…Physical gold or silver bars, coins or rounds, however, could potentially be used as a medium of exchange for such necessities. Gold is gold, paper is paper.
Knowing some of these issues may help keep you from falling into common traps when purchasing equity in a mining company. These common traps include:
- Buying shares believing they will always reflect changes in the gold or silver price.
- Believing such investments may be “safer” because they involve gold or silver.
- Falsely believing that such investments are the same as owning physical gold or silver.
- Overleveraging and buying stock on margin.
- Actively trading in and out of the shares possibly incurring losses and increasing transaction costs.
As you can see, owning actual gold or silver and owning “paper” gold or silver are two very different things…
What you decide to do will depend on your investment objectives…
The bottom line is this:
If you are looking for an investment that can potentially protect your wealth and purchasing power, be used as a medium of exchange and provide overall peace of mind, then the choice seems clear.
Physical gold or silver are the way to go.
Fortunately, it has never been easier to begin acquiring these key precious metals. In fact, an IRA account may be the ideal vehicle for building a significant holding of gold, silver or other precious metals. If you are considering adding physical precious metals to your investment strategy, we encourage you to speak with an Advantage Gold account executive today. Our professionals can guide you through the account setup process and answer any questions you may have about investing in physical precious metals. Don’t wait for prices to rise. Call us today at 1-800-341-8584.