Gold Bullion vs Mining Stocks

For nearly thirty years now, I have been speaking at conferences, on podcasts, and in interviews about the merits of gold ownership. During that time, one question has been asked of me every single time…

“Is there a difference between owning physical gold and owning gold mining stocks?”

The simple answer is, “Yes.”

But it is worth digging into this topic a bit to understand why.

“5% of my portfolio is in gold.”

Shortly after I arrived at Asset Strategies International in 1996, I remember taking a call. This investor was calling about physical gold.

She was told she should own between 5% and 10% of her assets in gold.

As always, I started the conversation asking why she was owning gold. In her own words, she basically gave me the definition of gold as wealth insurance… the store of purchasing power, with high liquidity, for a potential financial crisis she hoped to never have.

Next, I asked if she owned any gold already. She said, “5% of my portfolio is in gold.” So, I asked her what form her gold was in. She said, “I own shares of Newmont Mining.”

To that, I replied, “You own no gold.”

I went on to explain that she had shares in a company whose job it was to cost-effectively and efficiently mine gold at a profit so they could share those profits with their investors. And although I see immense value in owning various mining stocks in her portfolio, she owned no gold whatsoever.

Variables

The key difference between mining stocks and physical gold are the variables. Physical gold has none. Mining stocks have many.

Let us look at a few of these variables that need to be managed…

• Management – How strong is the mining company’s leadership? Are they brand new or seasoned veterans? Have they been successful profitably mining gold with other companies? Do they have experience in raising capital without diluting share value? Do they efficiently use the resources at their disposal?
  
  
• Resources – Is the gold in the ground proven? How much is there? How easy is it to extract?
  
  
• Permitting – Does the company have any regulatory hurdles to overcome to be able to produce in their particular jurisdiction? How long will that take? How much investor capital will they burn to attain the necessary permits?
  
  
• Infrastructure – Once the gold is pulled out of the ground, how quickly and efficiently can it be brought to market? Is there power to the mining site? Are there roads? Is there access to rail or water transportation? Is the site suitable to maintain an army of workers? Do they have the facilities to process the ore and extract the gold?
  
  
• Indigenous Personnel – Are the local people friendly? Do they support the mining company, or do they fight it?

There are more, but you get the idea.

Gold mining is a complicated and capital-intensive business. Quite a bit can go wrong.

One Example

It was early in the year 2000. It was becoming obvious that the gold price was about to go much higher… kind of like right now.

One particular mining U.S. mining company out west was ready to profit from gold’s rise. They had proven reserves. They had a solid management team with a history of prior gold-mining success. They had fantastic relations with the local people. They had all their permitting complete. They had all the proper infrastructure in place.

Further, they were following the lead of Newmont Mining by ceasing to sell gold forward. Simply put, they were going to sell the gold they pulled out of the ground tomorrow at tomorrow’s prices… as opposed to selling tomorrow’s production at today’s prices in order to raise capital now to keep the capital-intensive business running.

Companies sell forward to keep the doors open in tough times. They stop selling forward when they expect prices to climb… so they can get paid more for each ounce they mine in a rising market.

This firm had everything going for it. They were ready to succeed as the gold price rose.

The gold price proceeded to rise, but their stock proceeded to fall through the floor… and it has not recovered to this day… 25 years later!

Why?

The mine flooded. That flooding produced environmental concerns that have not been alleviated to this day.

Variables!

Apples and Oranges

Do not get me wrong. I am not against owning mining stocks or funds made up of mining stocks. They can be very lucrative investments providing leveraged returns as the gold price moves higher.

I own them in my portfolio, but they are a part of my equities allocation… NOT part of my gold allocation.

You see, unlike mining stocks, physical gold has no variables to manage whatsoever. Gold is not managed. Gold cannot be mismanaged.

It is what it is… the store of purchasing power, with high liquidity, for a potential financial crisis she hoped to never have.

It remains the very best way to Keep What’s Yours!

Call us today at (800) 831-0007 or email us. We stand ready to help you add much needed physical gold and silver to your portfolio.

AND we can help you store it for free through the end of this year if you open and fund a new storage account through ASI at International Depository Services of Delaware by the end of June 2025.

Good investing…