When it comes to investing in gold, you have two main choices: physical gold or gold exchange-traded funds (ETFs). Both can enhance your portfolio’s diversification and provide a sense of financial security during economic uncertainty, but they each come with their own set of benefits and drawbacks.
To make an informed decision on which option suits you best, it’s crucial to grasp the key differences between them. In today’s post, we’ll delve into the details of both physical gold and gold ETFs, comparing their pros and cons so you can confidently choose the investment that aligns with your goals and preferences.
Physical gold vs ETFs: 7 key differences
1. Where to buy
Physical Gold: Physical gold, including bars and coins, is typically bought and sold through bullion dealers, jewellery stores, private collectors and banks. You can find reputable dealers like us at Bullion Giant, which specialises in a wide range of LMBA-approved gold products.
Gold ETFs: Gold ETFs are traded on stock exchanges, making them accessible through most brokerage accounts. They offer the convenience of buying and selling shares just like any other stock, meaning you can quickly adjust your investment and take advantage of market opportunities.
2. Cost
Physical Gold: The cost of purchasing physical gold involves not only the price of the gold itself but also premiums over the live spot price, shipping, and insurance. These premiums can vary based on the form of gold and the dealer. Additionally, when selling physical gold, you might face additional fees and lower bid prices.
Gold ETFs: In contrast, ETFs typically have lower upfront costs but come with annual management fees from brokers that can impact long-term returns. These cover the costs of managing the fund and holding the cash equivalent of the gold, and they can vary. However, there are no shipping or insurance costs associated with ETFs, making them a more cost-effective option in this regard.
3. Diversification
Physical Gold: Physical gold is a single asset and doesn’t offer diversification on its own. However, it can be a good addition to an investment portfolio. To achieve diversification, you would need to hold various types of assets, including stocks, bonds, and other commodities, alongside your physical gold.
Gold ETFs: On the other hand, ETFs provide a straightforward way to gain exposure to the price of gold without needing to buy and store the precious metal. Some ETFs also offer diversification within the gold sector, such as those that invest in gold mining stocks. This can spread your risk across multiple assets related to the market.
4. Liquidity
Physical Gold: Physical gold can be less liquid than ETFs. While it is a highly sought-after asset, finding a buyer and getting a fair price can take time, especially if you’re selling large quantities. You also need to consider the logistics of transferring ownership. However, investing in small bars or coins enables you to liquidate your holdings more quickly and in smaller amounts.
Gold ETFs: Since they are traded on stock exchanges, ETFs offer high liquidity. You can buy or sell shares throughout the trading day at market prices, providing you with flexibility and quick access to your funds.
5. Maintenance
Physical Gold: Owning physical gold requires secure storage and insurance to protect against theft or loss and preserve its value, which incurs ongoing costs. However, it offers you complete control over its physical condition and location, benefiting those who value direct ownership and wish to personally safeguard their investment.
Gold ETFs: Gold ETFs require no physical storage or maintenance. The fund manager takes care of these aspects, and you don’t have to worry about the security of your investment.
6. Risk
Physical Gold: Physical gold carries some risks related to security and damage. Loss or theft can be devastating, and having proper insurance and storage can mitigate these risks. Moreover, physical gold does not generate income, such as dividends or interest.
Gold ETFs: ETFs are subject to market risk, including price volatility and fluctuations in gold prices. They also introduce counterparty risk, as their value depends on the fund manager’s performance, and tracking errors may occur due to fees and operational costs.
7. Taxes
Physical Gold: Taxation on physical gold can be complex, depending on your jurisdiction. In many countries, the sale of physical gold may be subject to Capital Gains Tax and VAT, which can impact your overall returns. To avoid CGT, we advise buying coins, such as Britannia coins, or smaller gold bars ( 1g, 2g, 5g or 10 gram).
Gold ETFs: Tax treatment for gold ETFs varies but is generally more straightforward. In some cases, gains from ETF investments may be taxed as capital gains, while others may treat them as income. It’s important to consult with a financial professional to understand how the taxation rules apply to your specific situation.
Should I buy physical gold or ETFs?
The choice between physical gold and gold ETFs depends on your investment goals, risk tolerance, and personal preferences. If you value tangible assets, seek a hedge against inflation, and are comfortable with the costs and responsibilities of storage and insurance, physical gold might be the right choice for you. On the other hand, if you prefer liquidity, lower upfront costs, and ease of trading, gold ETFs could be a better fit.
Buy physical gold bars and coins from Bullion Giant
For those interested in physical gold, purchasing from Bullion Giant can provide you with access to a range of high-quality gold bars and coins.
We offer competitive pricing and ensure that you receive authentic, 99.99% pure gold products backed by industry standards. Whether you’re looking to invest in gold for the first time or expand your existing collection, we are the go-to platform for acquiring physical gold.
Contact us today to enquire about our collection. Our team of experts will be on hand to assist you with any queries.
