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Gold Investments Unveiled: Balancing Protection and Opportunity with Physical Gold, Gold Miners, and Gold Bullion

By: Scott Van Den Berg, CFP®, ChFC®, CEPA®, AIF®, CRPS®, CMFC®, AWMA®

Gold, a metal that has captivated civilizations for centuries, has a rich history. Initially cherished for its aesthetic allure, gold soon became a medium of exchange, facilitating trade and economic transactions. Throughout the ages, gold has been revered as a precious asset, valued for its rarity, durability, and historical importance. Even today, gold continues to symbolize wealth, power, and stability, playing a pivotal role in cultures, economies, and financial systems worldwide.

For investors looking to diversify their portfolios with gold, there are several avenues to explore, each with its own unique advantages and considerations. In this article, we not only delve into the merits of owning physical gold but also shed light on the potential benefits of investing in publicly traded gold miners and participating in the gold market through publicly traded gold bullion.

Owning Physical Gold:

One of the most direct ways to invest in gold is by owning physical gold in the form of coins, bars, or jewelry. Physical gold offers investors a tangible asset that can serve as a store of value and a hedge against economic uncertainties. Its benefits include:

  • Tangible Asset: Physical gold provides investors with a tangible asset they can hold, offering a sense of security and ownership. This characteristic appeals to individuals looking for assets outside the traditional financial system.
  • Store of Value: Gold has a long and proven history as a reliable store of value, preserving purchasing power over time. During periods of inflation or currency devaluation, physical gold can be a trusted ally in wealth preservation.
  • Portfolio Diversification: Including physical gold in a portfolio can significantly enhance diversification as its price movements often have a low correlation with stocks, bonds, and other financial assets. This can help reduce overall portfolio volatility, providing a safety net for your investments.

However, owning physical gold also comes with certain challenges and considerations:

  • Storage and Insurance Costs: Storing physical gold securely can entail additional costs, such as insurance fees and secure storage solutions. Investors need to factor these costs into their investment decisions.
  • Illiquidity: Selling physical gold may not be as quick or straightforward as selling stocks or bonds. This illiquidity could pose challenges, especially during times when immediate liquidity is required.
  • Security Risks: Storing physical gold can result in theft or loss. Investors must take precautions to ensure the safety and security of their gold holdings.

Investing in Publicly Traded Gold Miners:

Investing in publicly traded gold mining companies is another way to gain exposure to the gold market. This approach offers indirect exposure to gold prices, while also tapping into the potential growth of mining operations. The benefits of investing in gold miners include:

  • Exposure to Gold Prices: Gold mining stocks are influenced by movements in gold prices. When gold prices rise, the profitability of gold mining companies often improves, leading to potential capital appreciation for investors.
  • Potential for Dividends: Some gold mining companies pay dividends to shareholders, providing investors with potential income in addition to capital gains. This can be attractive for income-focused investors and is an important difference from owning physical gold.
  • Professional Management: Gold mining companies are managed by experienced teams with expertise in the industry. Investors can benefit from these management teams' knowledge and strategic decisions.

Despite these advantages, investing in gold miners also comes with its own set of challenges:

  • Operational Risks: Gold mining investments are exposed to operational risks such as production challenges, regulatory changes, and geopolitical factors. These risks can impact mining companies' profitability and stock performance.
  • Company-Specific Risks: Individual mining companies may face company-specific risks, such as debt levels, management issues, or resource depletion. Investors need to conduct thorough research to assess these risks.
  • Market Volatility: The stock prices of gold mining companies can be highly volatile, influenced by factors beyond just the price of gold. Market volatility can lead to significant price swings in mining stocks.

Investing in Publicly Traded Gold Bullion:

For investors looking for a more liquid and accessible way to invest in gold, publicly traded gold bullion options such as gold ETFs (Exchange-Traded Funds) or gold-focused mutual funds are available. These investment vehicles offer exposure to gold prices without the need to own physical gold. The benefits of investing in gold bullion through ETFs or funds include:

  • Diversification with Liquidity: Gold ETFs and funds provide investors with exposure to gold prices while offering liquidity and ease of trading similar to stocks. Investors can buy and sell shares of these funds efficiently.
  • Professional Management: Many gold ETFs and funds are managed by experienced professionals who track the performance of gold prices closely. This can give investors a passive way to participate in the gold market.
  • Lower Costs: Investing in gold through ETFs or funds may have lower costs compared to owning physical gold. There are no storage or insurance fees, and transaction costs are typically lower.

However, investing in gold bullion through ETFs or funds is not without its drawbacks:

  • Tracking Error: Some gold ETFs may have tracking errors, meaning their performance may not perfectly mirror the actual price movements of gold. Investors should carefully select ETFs or funds with low tracking errors.
  • Counterparty Risk: Investors in gold ETFs or funds are exposed to counterparty risk associated with the entities managing these investment vehicles. It's essential to evaluate the creditworthiness and reliability of the fund managers.
  • Market Risks: Gold ETFs and funds can be influenced by market sentiment, supply-demand dynamics, and regulatory changes affecting the gold market. Investors should stay informed about market trends and factors influencing gold prices.

Gold investments can play various roles in an investment portfolio, offering diversification, a hedge against inflation and economic uncertainties, and a store of value. Whether investors choose to own physical gold, invest in gold miners, or participate in the gold market through publicly traded gold bullion, each option comes with its own set of benefits and considerations. It's crucial for investors to align their gold investments with their risk tolerance, investment goals, and overall portfolio strategy. 

Century Management Financial Advisors has conducted extensive research on gold and its investment merits spanning over 50 years. This deep historical understanding enables us to make informed decisions regarding the inclusion of gold in investment portfolios. Today, we emphasize the significance of owning gold as a crucial hedge against current economic uncertainties, including apprehensions about government debt levels and currency devaluation. We firmly believe that gold plays an indispensable role in diversified investment portfolios, offering essential protection and stability during periods of market volatility and fiscal challenges.

Century Management ("CM") is an independently registered investment adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Century Management is also registered as a Portfolio Manager in the Province of Ontario. A full description of our Firm’s business practices, including our Firm’s investment management services, wealth plans and advisory fees, is supplied in our Form ADV Part 2A and/or Form CRS, which is available upon request and also at www.centman.com. 

CM reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. It should not be assumed that the investment recommendations or decisions we make in the future will be profitable. Forward-looking statements are not guaranteed.

Past performance is not indicative of future results. This discussion is educational in nature, is not intended to be investment advice, and does not take into account specific client investment objectives. All investments involve risk and unless otherwise stated, are not guaranteed.  CM-2024-03-27