Gold has long been a tool to protect treasure and make it grow. Not surprisingly, because the price of gold itself can increase every year. But lately, the popularity of stocks has increasingly shifted gold, especially with the more intensive media and public figures promoting it.
So which one actually brings bigger returns, stock investment or gold? It is quite difficult to determine which one is superior, but actually it is not impossible. Each investment has its own characteristics that can provide advantages or disadvantages for you. See the explanation in the following article.
Gold Advantage of Stock
In terms of form and benefits
Gold is a tangible investment that Smart People can touch and save. This point is the main difference between gold and other investments, such as stocks and bonds.
Of course, shares and bonds can be purchased by Smart People in the form of certificates, but they are not in actual form and only represent their function as a sign of ownership.
Of course, gold also has other benefits beyond investment. We often see it used as jewelry and championship trophies. In fact, this precious metal has benefits in the industrial sector to food. This is clearly not found in other investment assets.
In case of price increase
In terms of price increases, gold has recorded a significant increase in certain periods, such as in 2000, 2008, and 2020.
In 2008, the price of gold hit a record 1,917 dollars per ounce and set another record thereafter with an increase of 2,069 dollars per ounce in 2020.
Gold’s rise unfortunately doesn’t last forever. Gold is basically the same investment tool as stocks: its price is determined by supply and demand. Before rising rapidly in 2000, the price of gold had even fallen for 20 years.
Gold tends to be raided as an investment asset when the economic crisis hits. If you look at the years of gold’s rise above, there is a strong factor in the form of a bad economic situation that has pushed gold prices up. The economic situation was the bursting of the internet bubble in 2000, the 2008 economic crisis, and the beginning of the 2020 pandemic.
There is an interesting statement by Barnet Sherman about the comparison of yields on gold and stocks from 1970 to 2020. The former US congressman, who also has experience dealing with multi-billion dollar retirement portfolios, said gold yields were 1.666% higher than S&P index stocks during that time span.
This may be acceptable if it is associated with a surge in increases at times when the economy is down. However, this comparison is only based on price alone without including the element of compound interest which is the advantage of the stock.
Advantages of Stocks from Gold
Stocks do not have physical properties or can be processed into jewelry like gold, but there are advantages that make them a favorite investment asset for investors.
By owning shares, Smart People means holding part of the ownership of a company. Investment in a company is more attractive because it continues to grow with an expanding business through the capital we invest there.
Growing companies invite high income. That indicates their stock price becomes more expensive.
The interesting part of course does not stop there. Companies may give their residual income to investors in the form of dividends. Smart People can also reinvest the money given by the company into the same shares. As a result, the amount will be doubled due to the effect of compound interest.
As an illustration, the shares that Smart People own can increase up to 10% every year. The addition of that extra 10% will also increase your total capital, which will then increase by another 10% the following year. That’s why stocks are still superior in terms of achieving the highest yields.
What About Investing in Gold Company Stocks?
Investing in shares belonging to a gold producing company is not the same as owning gold in physical form. The stock does not reflect the price of gold itself.
This can be seen from several gold producing companies in 2020, precisely when gold prices rose due to the pandemic.
The shares of PT Aneka Tambang Tbk (ANTM) and PT Merdeka Copper and Gold Tbk (MDKA) experienced an increase in prices exceeding the price of gold itself. On the other hand, the share price of a similar company, namely PT J Resources Asia Pacific Tbk (PSAB), even plunged up to 17%.
In conclusion, the shares of gold companies remain the same as the shares of any company. The price is determined more by the company itself, whether it’s its intrinsic value or the sentiments of the stock market players that influence it.
Investors should be sensitive to this. Not because the company produces gold, investors think that their shares can be used as a hedging asset (hedging) to reduce risk.
So, which one should you choose, stock investment or gold?
Gold and stocks have advantages and disadvantages which when combined can complement each other.
Smart People can use stocks as assets to maximize returns; while gold will be very useful as a safe transitional place for most of your investments should economic conditions deteriorate.
Although gold prices tend to rise when economic conditions fall, this pure metal is actually not immune to inflation. Even outside of a crisis or economic depression, stock prices are quite stagnant. For this reason, financial experts advise against putting 10% of gold in an investment portfolio.