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Physical gold vs. ETFs

Choose the right investment for you

Profile picture of Danni White
by Danni White ConsumerAffairs Research Team
gold bars stacked in womans hands

There are various ways to invest in gold, and two of the more popular options are physical gold and exchange-traded funds (ETFs).

If you’re interested in investing in gold, it’s important to know all the differences between these two methods and how those differences can influence your buying decision. Read on to see which is right for your needs.

What is physical gold?

Investing in physical gold means you’re actually purchasing an amount of precious metal. In short, you're investing in gold you can hold in your hands. Physical gold bullion can come in the form of coins, bars, ingots and rounds.

Gold is a rare natural resource, so there's a limited amount, and the new supply is limited compared to the amount already in circulation. Physical gold has had value for thousands of years, and many who invest in it find this continuity appealing. The current market value of gold fluctuates based on a number of factors, but individual gold products are usually measured in terms of their weight and fineness.

However, physical gold can be inconvenient and expensive to transport and store. Storing your gold at home is less expensive, but there’s a greater chance your investment may be lost or stolen.

What is a gold ETF?

Gold ETFs give traders the ability to invest in gold without having to handle the physical gold. Gold ETFs are typically trusts, and a share of an ETF is a paper asset that represents a set amount of gold held by the trust. Each share can be bought and sold like a stock.

“... a share of an ETF is a paper asset that represents a set amount of gold ...”

Even though their investors never take ownership of the actual gold, these trusts do hold physical gold. As a result, ETFs see the same changes in value as physical gold. There are various gold ETFs that you can invest in, but you should expect to pay a commission per trade and fees based on your fund’s expense ratio.

ETFs for gold

Once you’ve decided to invest in ETFs, you must choose the right fund for your needs. Here’s a look at some gold ETFs you can choose from.

SPDR Gold Shares (GLD)

This is one of the largest gold ETFs available today. The fund holds over 33 million ounces of gold in its vaults at the time of publishing. Each share is worth 0.093643 ounces of gold. The overall value of the fund is over $62.6 billion.

iShares Gold Trust (IAU)

The iShares Gold Trust is managed by BlackRock. As of publishing, this trust had over 15 million ounces of gold, and the value of this gold is over $30 billion. The fund’s shares each represent roughly 0.009525 ounces of gold.

Aberdeen Standard Physical Gold Shares (SGOL)

The Aberdeen Standard Physical Gold Shares ETF has $2.328 billion in assets and 138.2 million shares outstanding. There are also some tax benefits in this fund thanks to its grantor trust status.

Invesco DB Precious Metals Fund (DBP)

The Invesco DB Precious Metals Fund tracks the DBIQ Optimum Yield Precious Metals Index Excess Return. Following this index theoretically adds risk because it's based on gold and silver futures. This fund’s assets are worth $126 million, and it has 2.4 million shares outstanding at the time of publishing.

Pros and cons of physical gold

Here are some of the pros and cons associated with buying physical gold.

Pros

  • Gold is a solid option for hedging against inflation.
  • Gold is recognized as a valuable asset around the world.
  • You can manage your investment the way you want to.

Cons

  • There is a risk of theft with physical gold.
  • Transportation and storage fees can add up.
  • It can be hard to find high-purity gold to invest in.

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    Pros and cons of ETFs

    The pros and cons of investing in ETFs can differ significantly from physical gold.

    Pros

    • You don’t have to manage the physical aspect of gold, but you can still own and invest in it.
    • It is easy to cash out your shares at any time.
    • ETFs are easy to buy and sell, and this can be done entirely online.

    Cons

    • You don’t get to have the gold in your possession.
    • Other people manage the ETF, meaning you have less control.
    • ETFs may charge management fees.

    Investing in physical gold vs. gold ETFs: Which is better?

    Both gold and gold ETFs can both be good investment options. It’s up to you to determine which is better for your particular situation. You can even use both if you'd like. Just remember that all investments have risk, and if you don’t feel confident making investment decisions, contact a financial advisor to discuss your options.

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    Profile picture of Danni White
    by Danni White ConsumerAffairs Research Team

    As a member of the ConsumerAffairs research team, Danni White is committed to providing valuable resources designed to help consumers make informed purchase decisions. Danni specializes in content strategy and development, with over a decade of professional writing and research experience.