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23/04/2024

Gold Investment: Comparing Mining Stocks and Physical Gold

In today's financial landscape, the allure of physical gold is in the spotlight. It offers a robust investment alternative to the volatility of mining stocks. A thorough analysis of past and recent trends, highlighted by the chart below, tells a convincing story: investing in physical gold may provide a more stable and potentially more lucrative path compared to its stock counterparts, especially since 2012.
Gold Investment: Comparing Mining Stocks and Physical Gold

While Gold Hits All-Time Highs, Miner Stocks Lag Far Behind
Source: Visual Capitalist

The Timeless Appeal of Physical Gold

For centuries, gold has been a symbol of wealth and a store of value. Its intrinsic value has spanned cultures and ages, making it a cornerstone of wise investment strategies. Unlike other assets, gold has maintained its purchasing power, offering protection against inflation and economic uncertainties.

The evidence is striking. Since January 2000, the price of gold has significantly increased, reaching unprecedented heights in 2024. This rise is a testament to its enduring value as investors turn to gold as a safe haven during volatile market conditions (geopolitical and economic uncertainties).

The chart above illustrates this remarkable growth trajectory, with the prices of physical gold surpassing the performance of major mining companies over the same period.

Mining Stocks: Higher Volatility

Conversely, mining stocks, as represented by the NYSE Arca Gold BUGS (HUI), have experienced significant fluctuations. Although there have been peaks reminiscent of the gold rush days, the overall trend has been less spectacular compared to physical gold. The index, which tracks the largest publicly traded gold production companies, has not yet reached its 2011 peaks, suggesting a more tumultuous path for investors.

Here are the top 3 stocks included in this index (these 3 stocks alone account for about 40% of the weight of the NYSE ARCA Gold BUGS index):

  • Newmont (NYSE: NEM) 

  • Barrick Gold (NYSE: ABX) 

  • Gold Corp (NYSE: GG)

 5 Reasons to Choose Physical Gold: 

Investing in physical gold offers several advantages that mining stocks cannot match:

  1. Tangibility: Physical gold is a tangible asset. You can hold it, store it, and easily liquidate it, independent of stock market conditions. This tangibility provides a sense of security and control unmatched by paper assets. 

  2. No Counterparty Risk: Owning physical gold eliminates counterparty risk. Unlike stocks, which depend on the performance and decisions of mining companies, the value of physical gold does not depend on the promises or obligations of a third party. However, its price can be impacted by the interventions of Central Banks around the world, as is currently the case. 

  3. Diversification: Physical gold is an excellent means of diversification due to its low correlation with other asset classes. When stocks decline, the price of gold often tends to move inversely, adding a layer of protection to an investment portfolio. 

  4. Global Currency: Gold is universally accepted and can be converted into any currency, enhancing its liquidity and making it attractive in the face of geopolitical and economic uncertainty. 

  5. Long-Term Performance: The attached chart is clear evidence of gold's long-term performance. It presents itself as a resilient asset, often appreciated during periods when other investments weaken. 

A Golden Opportunity for Investors 

The compelling case for gold is supported by its historical performance, especially in recent times. As demonstrated by the chart, the steady rise in gold prices has surpassed the erratic nature of mining stocks. This is not to discount the potential value of mining stocks, which can offer dividends and leverage to the price of gold. However, for those looking for a more stable investment, free from the operational risks associated with mining companies, physical gold remains the standard.

Le cas convaincant de l'or est soutenu par sa performance historique, en particulier ces derniers temps. Comme le démontre le graphique, l'ascension régulière des prix de l'or a dépassé la nature erratique des actions minières. Ce n'est pas pour écarter la valeur potentielle des actions minières, qui peuvent offrir des dividendes et un effet de levier sur le prix de l'or. Cependant, pour ceux qui recherchent un investissement plus stable, libre des risques opérationnels associés aux entreprises minières, l'or physique reste la référence.

Conclusion

In conclusion, the attached chart is not merely a representation of past performance but a window into the potential of gold as a future investment. For those considering where to allocate their funds, physical gold presents a compelling argument with its proven track record, stability, and potential for growth. It's not just an investment; it's the preservation of wealth across generations, making it the quintessential asset for a well-rounded investment portfolio.

In the realm of investments, physical gold stands out as a clear winner, shining with the promise of stability and growth. Its performance, as visually depicted in the chart, is a testament to its resilience, inviting investors to revisit the ancient adage:

Sometimes, the best way to secure your future is to invest in the past.



Disclaimer:

The data presented on this page is provided for information purposes only and does not constitute investment advice, an offer to sell or a solicitation to buy, and should not be relied upon as a basis for/or inducement to engage in any investment.

Past performance is not constant over time and is not indicative of future performance. This newsletter does not take into account your financial situation and objectives. The investor is the sole judge of the appropriateness of the transactions he/she may enter into.

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