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Why Gold bullion is better investment option than Gold stocks?

gold-trading-online1The long debate about whether gold bullion is better or gold stocks for investment still continues. Gold bullion is gold in the form of gold bars and gold coins. The physical form of gold is known as gold bullion. The value of the gold bullion is the amount of bullion which is also known as fineness. For example, the U.S. Mint sells American Eagle gold coins that are 91.67 percent pure. The Chicago Mercantile Exchange requires gold bars that are delivered to satisfy futures contracts to be at least 99.5 percent pure. When an investor buys gold bullion for investment, he/she has to pay more than the spot price, because there is a commission being paid to the gold dealer. On the other hand, investors can invest in shares of gold miners and gold refiners. Often, a single company performs both functions. Moreover, there are also mutual funds and exchange-traded funds that own a portfolio of these shares. In this way an investor can diversify stock holdings and lower risk.

Gold bullion has many advantages for investors and it is a better investment option as compared to gold stocks. Following are the most important advantages offered by the gold bullion as compared to gold stocks
Inflation Hedge
Gold is a precious metal and for many years it has been used as a medium of trade. However, in the modern society, it is no longer used as a mode of money. However, still people hold gold bullion as a source to offset changes in inflation. The purchasing power of gold has remained stable over the period of time as compared to gold stocks prices and dollar which have suffered from volatility.

Long Term Investment
Gold bullion is regarded as best investment for the long run. Gold bullion is mostly preferred by long term investors as  compared to the gold stocks. The simple aim of buying bullion is to buy when prices are low and sell when prices are high.This strategy helps them to earn good amount of profit from rising gold prices. The ideal time to invest in gold is when inflation is expected to rise and pull down the value of the local currency. The earlier you can detect such drops, the more room you have to make a profit from the rising gold prices. Leading indicators such as bearish trends in stocks and political instability signal a future decline in the value of your country’s currency. Announcements by central bank to print out more currency notes can also indicate a good time to invest in gold.

Risk
Gold bullion is considered as a less risky investment as compared to gold stock because stock prices change more frequently and are more volatile as compared to gold prices.It is best investment option for the risk averse investors. So, if the objective of the investor is to minimize risk, gold bullion is the best option. Based on the principle, higher the risk, higher the return, gold stocks offers more return as compared to gold bullion due to high risk associated with the stock prices.

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About Emaad Qureshi