Risk of buying gold stocks Price fluctuation. Investing in gold stocks is not the same as investing in gold bars. Multiple factors beyond the price of gold will cause the price of gold shares to fluctuate in the open market. A gold-priced promissory note is still a “promissory note”.
Mining stocks and exchange-traded funds still present counterparty risk. There are also systematic risks involved. For example, by investing in shares of a gold company, you expose yourself to the economic conditions of the company's home country. At first glance, buying gold may seem like a simple and straightforward process.
However, there are dangers, such as falling into the line of a telephone seller that their coins are “unconfiscable” and somehow have more value because you bought them from them. Basic bars are the way to go when investing in gold. We have said that the price of gold works incredibly well even in times of uncertainty. Therefore, a good approach to balancing the volatility and profitability of your investments is to make gold part of the list.
After reaching its peak in 1980, the price of gold has fallen by 65% in less than two and a half years. You can see the volatility of this supposedly safe and stable asset class. Investors can invest in gold through exchange-traded funds (ETFs), buy shares in gold miners and partner companies, and buy a physical product. These investors have as many reasons to invest in metal as there are methods to make those investments.
Investors looking to buy gold would be much better off if they opted for bullion commodities, such as American Gold Eagles, Krugerrands or gold bars, of which several sizes are available. Even central banks buy gold coins and bars, not gold ETFs, to manage risk, promote stability and protect against inflation and the fall of the dollar. You can also buy shares in gold mining companies, gold futures contracts, exchange-traded funds (ETFs) focused on gold, and other regular financial instruments. For example, let's say you want to buy shares in one of the largest and most popular gold ETFs in the world, the SPDR Gold Trust (GLD).
In theory, you can receive gold delivery from your ETF shares, but it's not as simple as buying physical gold directly. If you are buying gold for your retirement account, you must use a broker to buy and a custodian to hold your gold. There may be more effective ways to buy and hold gold than forms of gold ETFs that don't involve great counterparty risk and don't trade within the limits of the banking system or the stock market. Some gold ETFs invest in stocks of gold mining companies, which adds an additional layer of risk to the investment.
Gold stocks can track the price of physical gold, but they are also susceptible to other types of risk that can have an impact on the stock price.