Should I Buy Physical Gold or Gold Stocks?

Do You Know the Difference Between Buying Physical Gold and Gold Stocks?


Written by John Rothans

Jun 24, 2020

You know you want to buy gold to help diversify your portfolio, but you’re not sure whether you should buy gold stocks or physical gold. Are they mostly the same thing? Does your portfolio reap the same benefits if you buy physical gold or gold stocks?

The answer to both of those questions is…not quite. Make sure you know the differences between buying physical gold and gold stocks to make the smartest decision for your portfolio.

What Is Physical Gold?

As you might expect, physical gold refers to gold that you can hold in your hand.

We’re all familiar with the most common kind of physical gold—jewelry.

But when we’re talking about wealth-related assets, jewelry typically doesn’t enter the picture. Instead, physical gold as an asset involves the precious metal that goes into making gold pieces such as coins and bars.

You’ll often see the word “bullion” when you’re shopping for gold bars and coins. It refers to bars and coins stamped with their stated weight and purity of the gold they contain. Bullion does not refer to certified coins that are sought after for their low quantity and high quality in addition to their precious metal content.

Who buys bullion bars and coins? Gold buyers include central banks, individuals, coin dealers, precious metals dealers, and exchange-traded funds (ETFs). Among the best-known bullion coins are the Gold American Eagle, the Canadian Maple Leaf, the Australian Gold Nugget, and the South African Krugerrand.

The market price of physical gold fluctuates from day to day based on supply and demand, global income growth, the strength of the U.S. dollar, and geopolitical turbulence.

Where Do You Buy Physical Gold?

Typically, someone purchases physical gold (other than jewelry) from an established distributor like U.S. Money Reserve. A distributor like U.S. Money Reserve sells both bullion bars and coins.

What Are Gold Stocks?

An owner of a gold stock owns a share of a publicly traded gold-mining company. The price of a gold stock rises and falls based on how the market views that company. Factors that go into assessing the price perception of a gold stock include a company’s revenue, profit, operating expenses, and growth outlook, Investopedia notes.

The market price of a gold stock doesn’t automatically go up and down in tandem with the market price of physical gold.

The worldwide gold-mining sector comprises more than 300 gold-mining companies that are publicly traded, the World Gold Council reports. The market value of a gold-mining company can exceed $10 billion.

Where Do You Buy Gold Stocks?

You can buy stocks of individual mining companies, or you can buy a collection of gold-mining stocks through an ETF or mutual fund. With an individual stock, you own a share of a company. With a gold ETF or mutual fund, you own shares of a group of companies. Either way, you put your money indirectly into the commodity.

Individual stocks, ETFs, and mutual funds are available through brokerage firms. Gold stocks are not available through U.S. Money Reserve.

Should I Buy Gold or Gold Stocks?

Ultimately, the choice of whether to buy physical gold or gold stocks is up to you.

One drawback to consider if you’re buying gold stocks, however, is that they “do not provide the same downside capture or diversification as physical gold itself,” according to U.S. News & World Report. Furthermore, the price volatility of gold stocks tends to exceed the price volatility of physical gold.

That said, what about gold ETFs and mutual funds? They’re traded on the same markets that individual stocks are, so they’re also subject to market volatility.

Another potential disadvantage of gold stocks, ETFs, and mutual funds is that you don’t own physical gold. These forms of paper wealth can’t replicate the same safety and security of owning a tangible asset like physical gold.

Physical gold also offers the benefit of strong performance during an economic downturn compared with equities, which are more likely to experience wild price swings amid a decline. Gold’s appeal as a safe haven is one reason people often turn to it over the stock market. Read more about reasons people buy physical gold.

Whether you choose gold stocks or physical gold depends partly on how you view the current state of the markets and the economy. Your choice can also depend on how close you are to retirement and the level of diversification in your IRA. If you’re ready to buy physical gold, call U.S. Money Reserve to learn about immediately available gold inventory and prices.


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