When investing in gold for stability, stocks of high-quality gold royalty companies often provide better risk-adjusted returns than physical gold bars or coins, while gold ETFs offer a middle ground with lower costs but less control. With gold reaching $4,000 per ounce in 2025 – up more than 50% for the year and marking the best performance for gold in modern history – understanding these different exposure methods has become increasingly important for stability-focused investors.
Why People Turn to Gold
Gold has maintained its appeal as a stability investment for centuries, serving as what George Herbert called “the universal language understood by all nations.” The reasons investors seek gold exposure today reflect both timeless concerns and current economic realities.
Historical Foundation of Trust
Gold’s use as a monetary asset dates back to early recorded history. The earliest use of gold as an exchange of value traces back to the reign of Croesus in 550-600 BC in the Kingdom of Lydia. The Lydians created Croesids – bi-metallic coins with consistent gold content that garnered universal trust and established gold’s role as stable currency more than 2,000 years ago.
This historical trust continued through modern financial systems. Canada operated on a gold standard from 1854 until 1914, briefly returned after World War I, then officially left in September 1931 during the Great Depression. The international gold standard resumed after World War II through the Bretton Woods agreement in 1944, which pegged the U.S. dollar at $35 per ounce of gold and established the dollar’s role as global reserve currency.
The current fiat monetary system began in August 1971 when President Nixon ended U.S. dollar convertibility into gold, effectively ending the international gold standard that had existed since 1944.
Government Debt at Historic Levels
One of the primary drivers behind gold’s 2025 performance is the recognition that government debt levels in the Western world have reached historically elevated levels. The U.S. debt level currently stands at $37.8 trillion as of October 2025, with expectations of significant increases over the next decade.
These unsustainable debt levels present only two solutions: fiscal austerity through budget cuts and higher taxes, or inflationary policies that reduce the real burden of debt. Inflationary policies represent the path of least resistance because fiscal austerity is politically unpopular, while inflationary policies initially create strong economies and rising asset markets.
Central Bank Gold Accumulation
International central banks have dramatically increased their gold holdings following the 2022 Russian invasion of Ukraine. After the U.S. Treasury froze Russian Central Bank assets, other central banks began diversifying away from U.S. Treasury holdings into assets like gold.
Central bank portfolios now comprise 27% gold versus approximately 13.5% between 2000 and 2020. While this represents the highest level in recent history, it remains below the much higher percentages held during the 1970s and 1980s. This trend is expected to continue over the next decade.
Our approach to wealth management recognizes these fundamental drivers supporting gold’s long-term role in diversified portfolios.
Physical Gold: Bars and Coins
Physical gold ownership offers the most direct exposure to gold prices but comes with practical considerations that many investors underestimate.
Gold Bars
Gold bars typically offer the lowest premiums over spot gold prices, making them cost-effective for larger investments. However, they require secure storage, insurance, and verification when selling. The lack of divisibility also makes bars less flexible for partial sales.
Gold Coins
Popular gold coins like Canadian Maple Leafs or American Eagles provide more flexibility and liquidity than bars, with widespread recognition and easier verification. However, coins typically carry higher premiums over spot prices and may include collectible value that doesn’t always correlate with gold prices.
Storage and Security Challenges
Physical gold ownership requires addressing storage, insurance, and security concerns. Home storage creates personal security risks, while bank safety deposit boxes or professional storage facilities add ongoing costs that can erode returns over time.
Liquidity Considerations
While gold is generally liquid, selling physical gold involves verification, testing, and often accepting below-spot prices from dealers. This friction can be significant during times when you might need quick access to funds.
Gold Stocks (Mining Companies, ETFs)
Gold stocks provide exposure to gold prices while offering the potential for leverage and professional management, though they introduce additional business and market risks.
Mining Company Stocks
Gold mining companies can provide leveraged exposure to gold prices – when gold rises, mining profits typically increase disproportionately. However, mining remains a challenging business subject to operational risks, cost inflation, and management execution issues. The business of maintaining and building mines can be highly uncertain with variable costs that cause large swings in profitability.
Gold Royalty Companies: A Superior Business Model
Gold royalty companies offer a fundamentally different approach to precious metals investing. These businesses provide capital to help gold companies finance development and expansion costs. In exchange, the royalty company receives royalty payments in perpetuity based on mine production levels.
Royalty companies offer several key advantages:
- Predictable Cash Flows: Once mines are operational, royalty companies receive steady, predictable income streams
- Operational Risk Avoidance: No responsibility for ongoing mine operations, construction, or maintenance
- Geographic Diversification: Royalty portfolios span different regions and mining companies, reducing concentration risk
- Long Production Timelines: Quality royalty companies often have decades of future production secured
Specific Royalty Investment Examples
Companies like Wheaton Precious Metals and Osisko Gold Royalties represent higher-quality business models within the gold sector. Osisko’s attractiveness stems from having royalties predominantly in top mining jurisdictions – Canada, United States, and Australia – which comprise 80% of the company’s net asset value.
Wheaton Precious Metals offers additional appeal through its silver royalty exposure (39% of revenue), positioning the company for potential industrial demand growth from solar electricity expansion and AI data center construction. The company’s portfolio provides exceptional longevity with 27 years of current production plus an additional 37 years of indicated and inferred production.
Sector ETFs and Mutual Funds
Gold sector funds provide diversified exposure to multiple gold companies, reducing single-company risk while maintaining gold price sensitivity. These funds typically focus on mining companies but may include royalty companies and related businesses.
Gold ETFs vs. Physical Ownership
Gold ETFs bridge the gap between physical ownership and stock market investing, offering distinct advantages and trade-offs.
ETF Advantages
Gold ETFs provide:
- Easy buying and selling through brokerage accounts
- Lower transaction costs compared to physical gold
- Professional storage and insurance handled by the fund
- Fractional ownership allowing smaller investment amounts
- No storage or security concerns for individual investors
ETF Limitations
However, ETFs also present certain limitations:
- Annual expense ratios that reduce returns over time
- No physical possession of actual gold
- Counterparty risk through the ETF structure
- Potential tracking errors relative to gold prices
- Tax treatment that may differ from physical gold
Popular Gold ETF Options
Major gold ETFs like SPDR Gold Shares (GLD) or iShares Gold Trust (IAU) track gold prices closely while offering different expense ratios and structures. Some ETFs focus on gold mining companies rather than physical gold, providing different risk and return characteristics.
The Role of Gold in a Portfolio
As long-term investors, we believe gold has an important role in diversified portfolios because of the benefits it provides during periods of uncertainty and inflation.
Strategic Allocation Considerations
For investors who are under allocated to gold, having a small position can provide important portfolio protection. The appropriate allocation depends on individual circumstances, broader portfolio composition, and other risk management strategies already in place.
Integration with Risk Management
Gold works most effectively when integrated with comprehensive risk management strategies. Our approach combines gold exposure with quality equity investments and specialized tail hedging strategies, recognizing that effective portfolio protection requires multiple strategies working together.
Long-Term Perspective
Rather than attempting to time gold investments based on short-term market forecasts, systematic approaches often provide better results. Gold’s performance can be unpredictable in the short term, making consistent positioning more effective than tactical timing strategies.
Opportunity Cost Considerations
Gold’s lack of income generation creates ongoing opportunity costs compared to dividend-paying quality stocks or interest-bearing bonds. However, during periods of currency debasement concerns and fiscal uncertainty, these opportunity costs may be justified by gold’s protective characteristics.
Does Gold Really Protect Against Inflation?
Gold’s inflation protection characteristics are more nuanced than commonly believed, with effectiveness varying based on the type and duration of inflationary periods.
Historical Inflation Performance
While gold has provided inflation protection over very long periods, its short-to-medium term performance during inflationary periods shows significant variation. Understanding current fiscal and monetary conditions helps evaluate gold’s likely effectiveness as an inflation hedge.
Current Inflation Dynamics
The unsustainability of current government debt levels creates conditions where inflationary policies may become necessary to reduce the real burden of debt. This environment potentially supports gold’s role as an inflation hedge over the coming decade.
Real Interest Rate Impact
Gold’s inflation-hedging effectiveness often depends more on real interest rates than nominal inflation rates. When real interest rates are negative, gold typically performs better, while positive and rising real rates can pressure gold despite ongoing inflation.
Quality Business Alternative
Quality businesses with pricing power often provide more reliable inflation protection than commodities like gold, as they can adjust prices and maintain margins during inflationary periods.
Should Retirees Invest in Gold for Stability?
Gold’s role in retirement portfolios requires balancing its stability characteristics against income generation needs and long-term growth requirements.
Income Generation Limitations
Gold produces no income, creating challenges for retirees who need regular cash flows from their investments. Unlike dividend-paying stocks or interest-bearing bonds, gold relies entirely on price appreciation for returns.
Volatility Considerations
While gold provides certain stability benefits, it remains a volatile asset. Gold prices can experience significant short-term swings that may not align with retirement income stability needs.
Portfolio Context for Retirees
For retirees with substantial portfolios, small gold allocations can provide diversification benefits without significantly impacting income generation. However, large gold allocations may impede the portfolio’s ability to provide sustainable retirement income.
Our approach to preserving wealth during recessions emphasizes quality business ownership and systematic protection strategies that can provide both growth and income throughout retirement.
Avenue’s Strategy: 22 Years of Gold Investment Experience
Avenue’s investment strategy has held a core weighting in gold for the last 22 years, reflecting our long-term perspective on precious metals’ role in comprehensive wealth management.
Strategic Evolution and Timing
In 2019, we became concerned with growing U.S. debt levels and their potential implications for investors, leading us to increase our gold weighting. We further increased our gold investments in 2022 and 2023 because of the growing risks we saw on the horizon. At that time, gold remained very unpopular with investors, but our independent analysis suggested the fundamentals were improving.
Quality-Focused Gold Exposure
Our core investments in the gold sector focus on Osisko Gold Royalties (OR) and Wheaton Precious Metals (WPM) – both Canadian companies representing superior business models within the precious metals sector.
Why We Prefer Royalty Companies
Royalty businesses offer strong long-term economics and consistent profitability in the gold sector. They provide capital to help gold companies finance development and expansion costs while receiving royalty payments in perpetuity based on production levels. This model avoids the operational uncertainties and variable costs that cause large profitability swings in traditional mining companies.
- Osisko Gold Royalties: We view this as an attractive investment because it holds royalties predominantly in the top mining jurisdictions of Canada, United States, and Australia, which collectively make up 80% of the company’s net asset value. Owning royalties in top mining jurisdictions provides greater confidence in asset quality and regulatory stability.
- Wheaton Precious Metals: This company appeals to us because of its significant silver royalty exposure (39% of revenue), positioning it for potential industrial demand growth from solar electricity expansion and AI data center construction. The company’s portfolio offers exceptional longevity with 27 years of current production plus an additional 37 years of indicated and inferred production.
Long-Term Outlook
We expect our gold investments to continue playing an important role in Avenue portfolios over the next decade as governments worldwide grapple with increasing debt burdens. The fiscal and monetary policy responses to these debt challenges will likely support future gold and silver prices.
Integration with Comprehensive Strategy
Our gold strategy represents one component of our broader wealth management approach, working alongside quality equity investments and specialized protection strategies to help clients achieve long-term financial stability with appropriate risk management.
Frequently Asked Questions
Which gold investment method offers the best stability?
Based on our 22-year experience with gold investing, gold royalty companies often provide the best balance of gold exposure and business quality for stability-focused investors. While physical gold offers direct commodity exposure, royalty companies like Osisko Gold Royalties and Wheaton Precious Metals provide gold price sensitivity through profitable, predictable business models with lower operational risks than traditional mining companies. ETFs offer a middle ground with easier trading but introduce ongoing expenses and counterparty considerations.
How much gold should be in a stable portfolio?
For investors seeking stability through gold exposure, we believe small allocations can provide important portfolio protection, particularly for those who are under allocated to precious metals. The appropriate allocation depends on your complete portfolio composition, risk tolerance, and other protection strategies. As long-term investors, we maintain core weightings in gold as one component of comprehensive risk management rather than as a primary stability strategy.
Why do you prefer gold royalty companies over direct gold ownership?
Gold royalty companies offer several advantages over physical gold ownership. They provide steady, predictable cash flows once mines are operational, avoid the operational uncertainties of mining businesses, and offer geographic diversification across different regions and mining companies. Companies like Osisko and Wheaton also provide decades of secured future production, creating more predictable long-term value than physical gold storage. Additionally, royalty companies can benefit from both gold price appreciation and business growth over time.
When should investors consider increasing gold exposure?
Our experience suggests that increasing gold exposure when it’s unpopular with other investors, as we did in 2022-2023, can provide better long-term results than following market sentiment. Current conditions including historic government debt levels, central bank gold accumulation, and ongoing fiscal uncertainty support maintaining gold exposure. However, timing should be based on fundamental analysis of underlying conditions rather than short-term price movements or market popularity.
