Forget gold and Bitcoin, I’d buy gold mining stocks for wealth preservation instead

In these tough times, investors have been turning to gold. It’s a centuries-old haven for preserving value, so that’s really not surprising. And the price of the shiny yellow stuff has reached record levels as a result. At the time of writing, an ounce is selling for $1,970, significantly ahead of the peak reached in late 2011. Bitcoin has been on a run too, but nowhere near as impressively as gold.

If cryptocurrencies provided as dependable a hedge against tangible asset volatility as the enthusiasts claim, we’d surely have seen better progress. At a little over $11,000 per coin, Bitcoin hasn’t even regained the levels it was at a year ago. And it’s still some way below its highest ever price of close to $20,000. I have to admit today’s price is higher than I’d ever thought it would reach again – but like everyone else, I wasn’t expecting a pandemic-led stock market crash either.

Safe havens

So yes, I think it’s undeniable that Bitcoin has provided something of a relatively safe haven against the Covid-19 crisis. But it’s been far less desirable than gold. When it comes to short-term worries, it seems investors turn to assets that have been tried and tested for generations. New upstart alternatives appear to attract a lot less confidence.

I can see the Bitcoin surge declining a lot quicker too. Gold could well remain high for a relatively long time yet, especially if we end up with a double-dip stock market crash. And the more time goes on, the more I see that as likely. I just don’t think most investors yet understand the full horror of the economic crisis that’s unfolding.

Gold or Bitcoin?

Would I invest in gold or Bitcoin as a hedge against hard times? I’d buy neither. I’d avoid Bitcoin because it’s over-hyped nonsense. For shunning gold, I have a number of reasons. There’s no way to put any kind of fundamental valuation on gold, when the price is decided purely on psychological considerations. It’s not like stock market shares, where we can relate prices to the profits made by companies. Gold also doesn’t actually generate any wealth, unlike companies which are steadily creating new wealth year in, year out.

Stocks instead

But I see gold mining stocks in a different light. While people are prepared to buy the gold, gold miners can create wealth for their shareholders and pay real cash dividends. A gold miner’s share price will vary as the gold price goes up and down. But unlike the metal itself, a miner will still typically make profits when the price is falling. What you need is a decent buffer between the market price of gold and the company’s costs of producing the stuff, and you should be laughing. I wouldn’t buy Bitcoin miners, though.

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