Ten Troy Oz Gold Bars from Crowne Gold
Photo Credit: Mark Herpel

An acquaintance recently asked me if it was a good idea to buy gold stocks; that is, to buy shares in gold prospecting or precious metal mining companies as an investment.

The simple answer: No.

Gold is not an investment - as I explained in Should I Buy Silver?, owning gold is like insurance. One does not buy insurance for investment purposes but to protect against catastrophic losses.

A gold mining company could be sitting on top of a billion dollars worth of gold, but if the economy collapses, if banks close, if investment houses go under, you will not be able to get a hold of any of their gold or sell those shares when there are no market makers. You will have worthless pieces of paper while looting, pillaging, and other dire things are going on in the streets. On the other hand, those who own the physical gold will be able to buy food, hire protection, and pay for airfare out of the country.