Just because you hold gold or precious metals in your exchange traded fund (ETF) portfolio does not mean that you have exposure to the actual metal or mining shares, which are two completely different investments.

Owning physical bullion is the lowest-risk way to invest in precious metals and is not subject to changes in production costs, says Nick Barisheff, Bullion Management Group on Goldseek.

Here are a few other points about the difference between gold bullion and the mining stocks and ETFs:

  • On a rising trend, mining stocks are correlated to metals. In a downward market, they are closely linked to broad equity markets.
  • Physical gold bullion is the best diversification tool for a portfolio and offers risk protection; two gold ETFs hold physical bullion and give investors the benefits of owning gold without the hassle of finding storage for it.
  • Mining companies pay dividends, and have a depleting asset base and they are suited for short-term investment or wealth preservation .
  • Mining stocks are sensitive to variables in the stock market like volatility, geopolitics, environment, management, financial strength, mine life, productivity and energy costs as well as hedging policies.

That said, gold bullion is the ultimate for gold exposure, especially when it comes to using ETFs. It offers liquidity and does not rely on anyone else’s performance. Gold bullion has been a popular safe haven for hundreds of years.

  • Market Vectors Gold Miners ETF (GDX): down 3.4% year-to-date

  • SPDR Gold Shares (GLD): up 2.6% year-to-date

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.