Buying Gold mining stocks or investing in a fund that holds Gold bullion are popular ways for investors to get Gold exposure. Although these investment vehicles do present certain advantages, particularly when stock markets are rising, they also present risks that are not correlated with the yellow metal.
For instance, Gold mining stock prices may be correlated to the price of spot Gold. But stock prices are also sensitive to the valuations of the mining company that offers them. Should a mining company underperform relative to the industry average, its stock value will depreciate, effectively removing its correlation with spot Gold.
On the other hand, funds that hold Gold bullion may charge fees for management and performance. Any additional fees paid to an intermediary can erode profits when Gold appreciates and add to losses when Gold fluctuates to the downside.
The primary goal of investors who use these financial instruments is to add Gold exposure to their portfolios. In light of this goal, it might make better sense to bypass these additional risks and fees, opting instead to buy physical Gold as a direct investment.