Need larger text?

-A A +A
  • Article Image Alt Text

Physical Gold – Not Gold Securities – Is the Way to Diversify

One of the most common questions asked by prospective gold and silver investors looking to diversify their portfolio with inflation-resistant commodities is, “What form of gold and silver should we purchase?”


Buying securitized precious metals (in paper form), such as exchange-traded funds (ETFs) and mining company stocks, is a common method of accessing precious metals in the marketplace. However, the “purest” form is physical metal, such as gold and silver bullion or premium coins – and advice you’re not likely to hear from your financial advisor.


Why? Investing in gold and silver through ETFs and stocks is popular with many individuals who find it fits well with the securities brokerage accounts they already own. For them, purchasing gold and silver ETFs, mutual funds, or mining stocks is as easy as logging in to an existing online trading account and making a few clicks. In no more time than that, and with no more effort, these folks can be precious metals investors.

A recent Barron’s article reports on a study related to this that will be published shortly in the Financial Analysts Journal. The study shows while the timing of entry into gold investing can be important, the form of gold owned is even more important. The bottom-line conclusion drawn by the report titled “All That’s Gold Does Not Glitter” is that gold securities investors may not be enjoying anywhere near as much benefit from owning yellow-metal stocks as they would if they purchased physical gold.


One of the study’s authors, Robert Johnson, CEO of the American College of Financial Services, declares, “If you’re going to put together a diversified equity portfolio, then the market-timing decision is far more important than the choice of individual stocks to put in that portfolio.” However, with respect to gold, he says “the choice of vehicle is just as important, if not more so, than the market-timing decision.”

The Barron’s article specifically notes the study’s correlation coefficients for gold mining equities vs. the S&P 500 index, as well as coefficients for gold bullion vs. the S&P. The study found that the former had a coefficient as high as 0.7, but the latter had a coefficient of just 0.3. A coefficient of 1.0 represents perfect correlation between two assets, while a correlation of zero indicates no correlation.

This study validates the idea that to realize effective diversification through alternative assets, it’s generally in your best interests to avoid securitized asset forms. Why? Because they have a tendency to highly correlate with the stock market. It certainly takes less effort to purchase “paper” gold and silver in an online brokerage account. However, buying securitized metals is likely to defeat the very purpose of investing in those assets.

Besides, buying physical metals doesn’t have to be difficult, and it certainly isn’t that way at Augusta Precious Metals. When you contact Augusta, you’ll speak to an experienced and knowledgeable gold and silver specialist who’s devoted to making the metals-buying process very simple. If you’re ready to move from “paper” gold to the real thing, call Augusta at 855-242-4121 to get started.


Gold is already off to a great beginning this year on the heels of what proved to be a strong 2017. Just how beneficial gold will be to your portfolio could have a lot to do with the form of gold you own. I and other gold authorities believe gold securities could prove especially troublesome if equities markets suffer a major correction, as some experts are predicting.