If you buy ticker symbol GLD, you have shares of real gold kept in a vault. It’s a pure play on gold.
If you buy mining companies, you are subjected to the benefits and problems of owning any company: management, tax, labor, legal, currency exchange and other issues. If they don’t mine enough gold, your shares go down. If they need to replace equipment and have high capital expenditures, your shares go down. Thus, when you want to invest in commodities, your best bet is to buy just the commodity, without the extra baggage of the company. If you want to buy mining companies, then that’s more of a stock play.
Some people prefer to buy physical gold. Then you have to pay a little extra for delivery, I think about 5%. You also have to pay for storage, perhaps a safe at your home or at the bank. I don’t know where to get physical gold at a good price. The transaction costs are high, so I have not done that. I think it’s bought by a more radical thinking group, who things our financial markets will collapse, and they won’t be able to redeem their GLD shares, and feel comfortable only with physical possession. These folks also believe that the USD will become worthless, and they will need gold on hand to make their purchases. I have a hard time seeing how we will pay our landlord, cashier, and utility company in gold, but maybe someday we will…For now, I am still buying shares and not taking possession.
