Evaluating the risks and rewards of investing in Gold ETFs vs. physical Gold

Gold investment risks are often because you are dealing with real-life objects.

For example, nobody can steal an ETF because it has no physical form. Meanwhile, gold can be stolen.

To be fair, it rarely is, but that’s because the owners pay extra for security to have it protected.

In addition, the storage space costs money, and not just any location will suffice. To that, we also add insurance, as any high-value commodity has to be insured in case something happens to it.

We have become so used to a well-oiled and organized global economy that we sometimes forget that it is genuinely hard to transport something from one place to another.

You may say that this is the seller’s problem, but any increase in cost will ultimately trickle down to the buyer as well.

You can’t just send large amounts of gold via the standard couriers that deliver Amazon packages. It needs to be secured.

Gold ETFs allow investment on the stock exchange, which happens electronically.

You may also invest small amounts of money. It is barely worth the effort to ship just a few grams of gold to someone who only has a few hundred dollars to spare. It is important to consider the tax implications of physical gold.

Almost every language in the world has a saying similar to “Don’t put all of your eggs into one basket.”

This is because if you invest all of your spare resources into a single venture if that venture fails, your entire effort will be wasted.

Using gold ETFs, it is much easier to maintain a diverse portfolio, leaving room for the investor to put money into other stocks.

Overall, gold is a very solid investment, but you need to diversify just in case.

There is no “fool’s gold” online. When a transaction involves real-life gold, there is a risk of scamming. As a result, many countries have laws in place that mandate assaying and verification.

At best, this extends the process of purchasing and delays the transaction.

In contrast, ETFs can be sold or bought instantly via brokerage accounts.

This ties into our previous point, as unreputable sources are much more likely to scam people when they reach a deadline with tangible gold.

As previously mentioned, ETFs are managed by financial institutions, and their services are not for free. You can expect to pay extra, impacting your overall ROI over time.

Since this intermediary exists between you and the value of your investment, they are another factor to worry about. For example, finance institutions can easily default or mismanage their efforts, which will potentially increase the risk of your venture.

If you are really successful, and depending on the country, you can be charged capital gains tax. It all depends on local legislation. Real gold often doesn’t run into this hurdle.

Everything electronic is more convenient and has a higher degree of liquidity. In contrast, Physical Gold investment is less convenient to own and store but has a higher degree of reliability.

When you are putting money into ETF, you are paying for what amounts to a financial claim. In times of strife and economic turmoil, you may want a solid gold bar, instead of a legal claim.

Financial instruments and stock markets are hard to understand, and they are also exposed to counterparty risks.

In addition, with ETFs, there are more people invited to the party. The fund managers and the government will all have a word to say. These are not issues that you encounter if you buy bars, bullions, or jewelry.

We also have universal and historical value.

All across history, in all major civilizations, gold was seen as valuable. Either as money or as a spiritual channeling material, the ideal of gold=value is very deeply buried into humanity’s subconscious.

If you are using gold to store value in case of crisis and turmoil, there is this guarantee that it will be accepted everywhere.

Gold is a refuge from currency inflation. Global debt is skyrocketing and is growing at an exponential rate. As a result, governments are printing money out of thin air to pay for it. But since that money does not represent tangible goods or services, the currency starts to lose its value.

This is why 1000 USD used to be an extraordinary amount of money in the past, and now it’s nothing to write home about.

Since you can’t print gold, it’s a good way to keep your money safe.

Also, it is much less regulated when compared to stock trading and harder to track by the government.

Overall, ETFs seem to be better in the short term. With ETFs, you are treating gold as any other stock and wish to make money from it. Investing in gold ETFs can be more costly in the long run as you accrue fees and taxes.

But you don’t have to keep anything buried underneath the floorboards, and it lets you diversify your investments.

Meanwhile, those who tend to buy real gold have other priorities. Sure, it would be nice to turn a profit, but mostly, people buy gold to hedge against inflation and own something that is recognized as universally valuable. Unlike ETFs, the cost is high in the upfront but tapers in the long term.