Gold ETFs VS. Physical Gold

What's the difference between physical and paper gold assets? Do you get to own physical gold when you buy a gold ETF? Here’s everything you need to know.

<p>What's the difference between physical and paper gold assets? Do you get to own physical gold when you buy a gold ETF? Here’s everything you need to know.</p>

Precious Metals Guide

Gold ETFs VS. Physical Gold | GOLD AVENUE

A beginner's guide to gold 

<div class="highlighted-blue-line"><p>Physical gold is a tangible asset with intrinsic value and a rare commodity used for investment, manufacturing, and luxury products.</p>
<p>Gold ETFs, on the other hand,&nbsp; have no intrinsic value and are more of an indication that you own a digital asset whose price follows the price of physical gold itself.</p>
<p>It is likely that the institution that sold you your gold ETF shares holds only a fraction of the value of the physical metal.</p></div>

Key takeaways

<p>Are you ready to dive into the gold market but are not sure if you should choose paper gold (a.k.a. gold ETFs) or physical gold?<br></p>
<p>To help you get a better understanding of how gold ETFs and physical gold assets work, on this page we will explain:</p>
<ul><li>What are gold ETFs?</li><li>What is physical gold?</li><li>What are the key differences between gold ETFs and physical gold?</li><li>Who buys gold ETFs and physical gold?</li></ul>
<h2>What are gold ETFs?</h2>
<p>ALT: gold ETFs are paper assets that track the price of gold but don’t give you exposure to the actual physical gold, as shown in a picture of yellow ETF letters on the black background </p>
<p>Gold ETFs is a term that refers to gold-related assets that reflect the spot price of gold but are not gold by itself. To put it another way, when you buy gold ETFs, you don't own the actual physical precious metal.</p>
<p>Read our Beginner’s Guide to Gold to <a href="https://www.goldavenue.com/en/precious-metals-guide/a-beginner-s-guide-to-gold/investment-gold/what-is-a-gold-etf">learn more about gold ETFs</a>.</p>
<h2>What is physical gold?</h2>
<figure style="text-align: center;"><img src="https://assets.goldavenue.com/uploads/redactor2_assets/images/1778/ad4591de-bf8d-4705-953d-9c455815c7a8.png" data-image="1778" alt="when you buy physical gold bars and coins, you get the most direct exposure to the precious metal as shown in the picture of two cast bars and a 1 oz Canadian Maple Leaf coin on the blue background"></figure>
<p>Unlike other assets, gold has historically retained its value throughout centuries. Besides being used in jewelry and art, physical gold is a medium of exchange and one of the oldest forms of investment.</p>
<p>People commonly regard gold as a means of preserving wealth and passing it down from generation to generation.</p>
<p>Physical gold is also a tangible asset that you have in your possession or that has been stored for you. It is a precious metal that comes in the form of bullion, coins, bars, jewelry, and other items.</p>
<p><a href="https://www.goldavenue.com/en/precious-metals-guide/a-beginner-s-guide-to-gold">Learn more about physical gold</a></p>
<h2>What are the key differences between gold ETFs and physical gold?</h2>
<figure style="text-align: center;"><img src="https://assets.goldavenue.com/uploads/redactor2_assets/images/1779/333de2db-7723-473b-ab56-0b7ef8b0b19c.png" data-image="1779" alt="physical gold is a tangible asset that has intrinsic value, while gold ETFs are paper assets that function like stocks and track the price of gold, as shown in the picture of gold etfs letters vs a gold bar by PAMP Suisse"></figure>
<p>Even though they have the same word in their name, paper gold and physical gold have several substantial differences as investment assets.</p>
<p>Let’s see what they are.</p>
<h3>Physical gold is a tangible asset with intrinsic value</h3>
<p>Physical gold, as the name implies, is a tangible asset that has intrinsic value as a rare commodity used in investment, manufacturing and luxury products around the world. </p>
<div class="highlighted-blue-bg"><h4><strong>💡What is a tangible asset?</strong></h4>
<p><strong></strong>A tangible asset is a financial asset that has a physical form and a finite monetary value.</p>
<p>Real estate, for example, is another tangible asset.</p></div>
<p>Gold ETFs, on the other hand, have no intrinsic value and are more of a proof you own a digital asset that is only <em>related</em> to physical gold. </p>
<p>In other words, it <strong>reflects the price of gold, but only in the form of a paper asset</strong>. </p>
<h3>When buying gold ETFs you don’t really <em>own</em> gold</h3>
<p>In reality, the institution that sold you an ETF share may only hold a fraction of the physical metal value of your asset.</p>
<p>Imagine you decide to buy gold ETFs: it means you now own a contract stating that you are the owner of a value, which is more or less equivalent to that of a 1 ounce of gold.</p>
<p>Now, let’s say there is a severe economic downturn and you decide to withdraw your gold. There will be thousands of people like you who will want to do the same thing, but the supply will probably be insufficient, and the company that holds your paper gold will most likely be unable to provide physical gold to all ETF owners.</p>
<h3>Gold ETFs carry counterparty risks, while physical gold doesn’t</h3>
<p>This is one of the most common risks associated with gold ETFs (also known as paper gold). A company or a broker in charge of your ETFs could go bankrupt or fail to meet their obligations, misrepresenting their portfolio's true state.</p>
<p>So, when buying paper gold, you must rely on a third-party company to manage your investment.</p>
<p>The situation is completely different with physical gold. You will have no counterparty risks if you buy it from a reseller who sells 100% allocated gold and stores it off its balance sheet, because your gold will always be entirely owned by you, regardless of what happens to the company storing it for you.</p>
<h3>Gold ETFs require no special storage space</h3>
<figure style="text-align: center;"><img src="https://assets.goldavenue.com/uploads/redactor2_assets/images/1780/7585d800-25ba-497e-b1b7-038c38ef492f.png" data-image="1780" alt="gold etfs are paper assets that function as stocks but that can very rarely be exchanged into physical precious metal as shown in the picture of a laptop with ETF letters and yellow and green graphs going up"></figure>
<p>You don't pay shipping or delivery fees with gold ETFs; you only pay the commission a broker charges you for the transaction. ETFs, like shares, are bought and sold on a stock exchange, so they don't have any additional storage costs.</p>
<p>Unlike physical gold, gold ETFs are only available in digital form. However, because they are in digital form, they may be vulnerable to server problems or even hacking.</p>
<p>On the other hand, as a tangible asset, physical gold has to be stored somewhere. There are a few storage options:</p>
<ul><li>to keep your gold at home</li><li>to store it in a bank’s safe deposit box</li><li>to store it in a secure vault. Some gold resellers, including GOLD AVENUE, offer instant and simple storage solution with some free storage, thus eliminating the costs of storing and insuring your physical gold.</li></ul>
<h3>The value of physical gold is recognized worldwide</h3>
<figure style="text-align: center;"><img src="https://assets.goldavenue.com/uploads/redactor2_assets/images/1781/b429f88b-0855-4315-95a0-090f14bedc64.png" data-image="1781" alt="The value of physical gold has been recognized for thousands of years all around the world, while gold ETFs is a relatively new form of investment, as shown in the picture with the black background and “EARTH” written in gold"></figure>
<p>Physical gold, unlike paper gold, has been used as money for thousands of years, long before paper money was invented. Long before the twentieth century, the gold standard was used to value fiat currencies. As a result, gold continues to be regarded as a global currency.</p>
<p>Gold has been used as a global currency and a symbol of wealth for millennia all over the world. From Aztec treasures to the vaults of the European Central Bank, gold has played an important role in human history as a symbol of wealth and success.</p>
<p>It can withstand geopolitical tensions because its value transcends national boundaries. Physical gold is still highly valued after thousands of years, despite the fact that other investments and fiat currencies have come and gone.</p>
<h2>Who buys gold ETFs and physical gold</h2>
<p>Ultimately, a decision between buying gold ETFs or physical gold is largely determined by one's investment goals and strategy.</p>
<p>Gold ETFs are mostly used because they’re easier to trade (you can buy and sell them quickly in whatever quantity). So, if you’re an experienced investor looking for a short-term exposure to the price of gold, gold ETFs may be a good option for you.</p>
<p>Physical gold, on the other hand, may be a better option if you want to have your investment fully allocated (owned entirely by you), and which is a good store of value.</p>
<p>However, buying both gold ETFs and physical gold can also be beneficial, especially if you want to diversify your portfolio and preserve your wealth by doing some short-term trading and long-term saving.</p>