What are the Pros and Cons of Gold Shares?

A. Leverkuhn

For those who are looking at investing in gold shares of any kind, it’s a good idea to evaluate some of the pros and cons that revolve around the values of raw gold, future gold prices, and the greater economic or market context. Investors often look at gold shares relative to some of the other options at their fingertips for getting involved in gold trading. Knowing the benefits and disadvantages of buying different kinds of gold shares will help these traders to make the best decisions.

Someone who has invested in gold usually receives a certificate that indicates their ownership rather than physical gold bars.
Someone who has invested in gold usually receives a certificate that indicates their ownership rather than physical gold bars.

Some people who are enthusiastic about gold stocks or shares point out that these investments can be much more liquid than holding actual raw gold. Various gold stock shares can be traded throughout trading days, or on a longer-term basis, but many of them do not require specific holding periods. As a result, it can be easier to get rid of gold shares or cash them in than it often is to part with more concrete gold assets.

Gold starts off as small flakes and nuggets before it is melted and refined.
Gold starts off as small flakes and nuggets before it is melted and refined.

Another reason that some investors like gold stocks and shares is that they can use a general stock market strategy to buy and sell these shares for profit. Many investors who trade on the stock market look to “time the market,” where buying on a downswing can result in gold shares bought essentially at a discount. In some of these situations, it doesn’t take long for these gold shares to appreciate rapidly.

Some financial professionals also point out that there are limitations and downsides of using gold shares to invest in gold as a precious metal. One major disadvantage of some gold stock shares is that they are not concretely tied to gold prices. Gold as a commodity has a fixed spot price and established futures prices.

Gold equities or stock shares can experience much more volatility than the price of raw gold. The best example is gold shares that are based on the profits of a mining company. Gold mining shares can skyrocket if the company strikes gold, or they can go a long way down when the company fails to produce. This is not what some gold investors want; they want to benefit from adding a more stable element to their portfolios, for example, to hedge against currency risks.

Investors also point out that, in a nutshell, gold stock shares are not gold. The person holding gold stock does not get to possess precious metal in its physical form. Some of the other abstractions of gold stock shares can also be a negative factor in whether a trader decides to buy a range of gold equities, or actually hold raw gold in a safe or other protected area.

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