So, in the long run, stocks appear to outperform gold by about 3 to 1, but over shorter time horizons, gold can win. Gold stocks tend to be more attractive to growth investors than to income investors. Gold stocks generally rise and fall with the price of gold, but there are well-managed mining companies that are profitable even when the price of gold falls. Rises in the price of gold are often magnified by gold stock prices.
A relatively small increase in the price of gold can generate significant gains in the best gold stocks, and owners of gold stocks tend to earn a much higher return on investment (ROI) than owners of physical gold. These two asset classes serve two different purposes. While stocks provide the portfolio with much needed growth (high returns (above the inflation rate) in the long term, gold acts as a hedge in times of uncertainty. If you already invest in other types of stocks, you can easily start investing in the shares of a mining or gold-manufacturing company.
Because gold stocks don't mimic the prices of gold bars, they provide less diversification to your investment portfolio. People looking to invest in gold usually have two options: investing in gold bars or gold stocks. With inflation rising and the stock market price well below its highs, some investors are looking for a safe asset that has a proven record of earning, and that's gold. Therefore, if the stock market collapses, your investment in a mining company or gold manufacturer is likely to also be affected, while the price of physical gold will increase.
Gold bars will retain their inherent value, can be used in the event of an economic crisis and constitute a great diversification for traditional stocks. If you're looking for an investment similar to the current stocks in your portfolio, gold mining stocks are a better investment. Even those investors who focus primarily on growth rather than stable incomes can benefit from choosing gold stocks that demonstrate a historically strong dividend yield. Because gold stocks tend to mimic stock market trends, not the price of gold itself, your gold stocks can perform well even when the price of gold itself declines.
Investors like gold for many reasons, and it has attributes that make this commodity a good counterpoint to traditional securities, such as stocks and bonds. When evaluating the dividend yield of gold stocks, consider the company's performance over time with respect to dividends. Investors can invest in gold through exchange-traded funds (ETFs), buy shares of gold miners and associated companies, and purchase a physical product. Like other stock investments, gold stocks are almost entirely dependent on external factors, not just on the value of gold.