Paper Gold vs Physical Gold
Investors looking to minimise their exposure to risk rely on diversifying their portfolio and with the optimistic outlook for the gold market, more investors are realising the potential of pouring a portion of their capital into gold.
There’s no denying the fact that now is the best time to invest in gold. But how do you decide which type of gold is right for you? Today, we will be talking about paper gold vs. physical gold.
Understanding Paper Gold and Physical Gold
Physical gold refers to actual gold that you have in your possession or stored for you. It is a commodity that may come in the form of bullion, coins, bars, jewellery, and the like. The owner holds a tangible object that stores value.
Paper gold, on the other hand, is a piece of paper that is a derivative of physical gold. Some examples include gold certificates issued by banks and mints, unallocated or pooled accounts, gold mining shares, exchange traded funds (ETFs), gold futures, gold options, and contracts for difference. Note that with this type of gold, you don’t actually own gold but rather a promise to receive physical gold.
Real-World Issues with Paper Gold
The underlying issue with investing in paper gold is that it is exposed to several risks. These include:
– ETFs are prone to counterparty risk. In this form, gold is held by a trustee and you must rely on them to make good on your investment. However, they are not liable for any loss, theft, damage or fraud.
– There isn’t always enough gold supply to support the sale and trading of gold certificates.
– Mining stocks are often directly affected by movements in the stock market rather than in the precious metals market. This means your investment is more at risk in times of economic duress or uncertainty.
– Some claim the ratio of Paper gold traded is somewhere between 200 to 250 to 1 of physical gold held.
Physical Gold is a Better Investment
Physical gold does not carry the same risks as paper gold. It is a physical holding that, once bought, is all yours. You can store it in your chosen location for as long as you like. It is also very liquid and can be converted to cash easily regardless of where you are in the world.
What’s more, physical gold is a store of value and is an excellent hedge for the financial or political crisis that may come your way.
When it comes to choosing the right kind of gold to invest in, unless you are involved in day trading, physical gold is still the way to go particularly if you want long-term financial security. While there are risks associated (cryptocurrency, competition from gold-like products, and the high cost of acquisition) with physical gold, the long-term benefits it has for your portfolio still make it a viable and trusted option to diversify.
So, if you’re too heavily invested in paper gold and want to diversify by purchasing physical gold, or if you (like many) are excited by the future prospects and past trends of physical gold and would like to increase your gold holdings – it is important to consider how you purchase your gold and where you will store all your gold.
Storing gold at home will drive up your home contents insurance and significantly put you and your family at risk of a home invasion and theft. While purchasing gold from the other side of the country will come with high shipment costs that chip into your margins.
Fortunately, these days you are spoilt for choice and there are private safe deposit box storage facilities that specialise in the sale, storage and purchase of gold bullion and other precious metals.
Getting Started with Your Gold Investment
You can get started today with Private Vaults Australia! PVA is a state-of-the-art safe deposit box storage facility and gold bullion dealer that services the Brisbane and Sunshine Coast regions.
2 Months Free, No long term commitment necessary.* Limited spots available.