Gold Stocks or an ETF?

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Gold Stocks or an ETF?

Gold continues to be the investment of choice for investors worried about inflation. History tells us that hard assets have an inverse correlation to the strength of the dollar, providing diversification against dollar-denominated assets like stocks and bonds.

But even among investors who like gold, the group is split between those who like ETFs and others buying individual stocks. 

There is no right or wrong answer to the question, it’s only a matter of which instrument best suits your investor profile.

What’s the Difference?
The biggest difference between a gold ETF and an individual gold stock is volatility. The individual gold stock will be more volatile, carrying a higher risk-reward ratio.

The gold ETF can be broken down into 2 categories. An ETF that is attached to underlying gold prices or an ETF made up of a basket of individual gold stocks.

Of these two, the gold stock ETF will be more volatile, while the gold-price ETF will trade tick-for-tick with underlying gold prices.

To give the conversation more texture, here are a few charts that show how each of these instruments has responded to the rally in gold prices. As you will see, the small-cap gold stock produced the biggest returns by a long-shot, but has also been fairly volatile.

Take a look at the charts to get a better indication of the vehicle that suits you best.

Gold Stocks & ETF’s:

Yamana Gold (AUY) is a Canadian gold miner that operates primarily in South America in countries like Brazil, Argentina, Chile and Mexico. As you can see from the chart, this stock exploded when gold prices began accelerating in 2005, gaining around 580% in just 3 years. Keep in mind, this was a small-cap and has a very strong balance sheet, meaning it will have more upside kick than a large-cap miner.

AUY Monthly 2005-2008
Chart provided by eSignal


Barrick Gold (ABX) is a large-cap gold miner with operations spread throughout the world. As you can see from the chart, it produced some nice gains with higher gold prices, but it didn’t have the upward thrust of Yamana. Large cappers just tend to me more stable than the small caps.

charte provided by eSignal
Chart provided by eSignal


SPDR Gold Shares (GLD) is an ETF that is linked to underlying gold prices. As you can see from the chart, it is less volatile than the gold stocks, but also does not have as much up side potential.

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1 thought on “Gold Stocks or an ETF?”

  1. Helpful charts.

    Gold is overrated. It hasn’t hardly moved at all despite the country being on the verge of economic collapse. If it wasn’t soaring in January and February, when will it?

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