Comparing Gold and Gold Mining Companies: Considerations for Investment
Warren Buffett has publicly (and frequently) written about what he considers the folly of investing in gold: Gold doesn’t produce any tangible values – neither products nor services. This article argues why Buffet is right about gold. However, are gold mining stocks a better investment than gold bullion?
This article looks at the performance of gold bullion versus gold mining stocks. Which one is better to own? Which one is riskier? Gold or gold mining stocks? Should you buy the metal or the companies/stocks? The gold price has outperformed the gold mining stocks by a wide margin.
At the end of the article, we explain why we believe gold bullion and miners are poor investments in the long run.
Is it better to buy gold or gold miners (gold mining stocks)?
Which way is best to get exposure to gold? Should you buy the metal or get exposure via mining companies?
Let’s jump right into it. We calculated how an investment in gold and gold mining stocks performed from 1985 until the summer of 2020:
We used the XAU index as a proxy for the gold miners (blue line), and it’s pretty clear that gold mining stocks underperformed the gold price by a wide margin from 1985 until the summer of 2020 (gold is the red line).
We believe it makes sense. There are plenty of arguments why mining stocks over time is a poor investment:
Gold mining risk:
Let’s look at some of the risks of owning gold mining companies. We have never owned mining stocks, and we most likely never will for these reasons: