Should I buy gold or gold stocks?

When the price of gold rises, it’s inevitable for investors to try and find ways to monetize the movement of money into gold. It’s just as inevitable for investors to get freaked out by the process of buying physical gold (whether in bars or coins), and then double freaked out by the prospect of buying a gold mining stock or two as a suitable replacement. Which is better to do? It’s situation-specific. 

> Physical gold:  For me, I like to own physical gold. I’ve been buying physical gold since 2005. My first 1-ounce coin cost me $450. But I didn’t know how to buy gold in those days. I went to gold shops in places that were unsafe. I bought way more gold than I needed, and I didn’t have a good plan for how to store or protect what I bought. Now, I store my gold in a safety deposit box, and I have the process of buying gold down to a science. But the one hitch in my plan is that I’ve never actually sold gold before. While I have an idea of how to sell my gold, I’ve never gone through the process of trying to sell it back to a bullion dealer or finding a buyer on the open market. There are risks there that I simply haven’t addressed.

> Gold stocks:  The thinking here is to put money into companies with significant inventories of gold or that hold significant gold mining rights. Naturally, there isn’t a straight-line relationship between the price of gold and the value of the gold stocks that you can buy, since each gold stock is nerfed and boosted by its own set of circumstances. I’ve owned gold stocks that simply refused to sell gold during a pump. I’ve owned gold stocks that used the pump to sell a follow-on offering. I’ve owned gold stocks that used the pump to go on a mergers and acquisitions spree. Objectively, the mining industry is not investor-friendly, but I find that the more regulated the gold stock, the more aligned the investors’ best interests tend to be with those who own the company and the government that taxes their income. At the end of the day, the prime benefit of owning gold stocks is liquidity. It’s way easier to get in and out of your position.

MB bottom-line: We don’t have a lot of options on the PSE for investing in gold. Americans have gold mining stocks and a long list of ETFs that allow investors to make very exotic bets on the price movement of gold. We don’t have that. We have Apex Mining [APX 6.95, up 10.3%; 169% avgVol], OceanaGold PH [OGP 16.40, up 2.4%; 156% avgVol], and Philex Mining [PX 7.00, up 1.0%; 79% avgVol], plus a collection of smaller miners and companies that produce gold as a secondary resource to their primary course of business. Of those, APX has already experienced a 120% surge in its stock price, PX is more of an exploratory bet, and OGP is a dividend play with gold price appreciation upside. Leaving aside what could happen with the price of gold as this economic crisis evolves (whether it skyrockets or tanks), whenever I’m thinking about buying gold, I’m not usually thinking about making a high-risk bet on what could be: I’m playing defense. I’m trying to secure my money and protect my portfolio from wild swings or from specific risks like inflation. That’s why I prefer OGP, but not as a way to play the price of gold specifically, but as a way to potentially gain from the movement of gold’s price as a sweetener over and above what the company already produces in the way of dividends. Of course, the calculation of whether it’s worth putting money into OGP at these price points is one that depends on several assumptions that I’m not willing to make on your behalf. What will the price of gold be through FY25 and beyond? What will happen with interest rates? How much gold will OGP produce compared to last year? The current price represents a loose approximation of a lot of these assumptions, so as any of those metrics fluctuates, the price will also fluctuate. OGP isn’t a gold price pass-through, but it does approximate the shape of gold’s price trends.    

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