Physical gold is the type of gold you can hold in your hand ingots or ingot coins. In the case of physical gold, you are the owner of the ingots or coins. On the contrary, paper gold usually reflects the price of gold, but only in the form of a paper asset. On the other hand, paper gold is the term that applies to investments covered by exchange-traded funds or gold ETFs.
If you're familiar with how mutual funds work, gold ETFs won't let you get carried away with your head. Basically, your fund buys a certain amount of gold and issues shares in that fund. Theoretically, the value of your shares will track the price of gold and, as a result, will rise and fall. One of the two most common ways to accumulate gold is to buy “paper gold”.
Paper gold refers to investing in exchange-traded funds (ETFs) that, in turn, invest in gold or in gold futures and options. The other method is to buy gold, usually in ingots or coins. Just as physical gold is not tied to a government or financial system, neither is the ownership of physical gold. So, with the true price of gold hidden behind the price of gold on paper, smart hands cling to the physical.
I have made my own figures with the gold contained in the ETFs that I compared in the article, and the total would be about 1052 tons, which represents 45% of the gold stored in the London vaults, former BoE. As long as the market keeps “paper gold” on par with physical gold, the price of gold in dollars is suppressed due to the new flow of synthetic paper. If the derivatives market collapsed, the price of its real gold assets would skyrocket, more than compensating for the losses of gold on speculative paper. I have omitted “small” or very illiquid ETFs, such as Asian physical gold stocks (AGOL) and gold futures ETFs.
Gold certificates, common accounts, gold futures accounts, and most exchange-traded funds are examples of paper gold. Physical gold will always provide the most direct exposure to gold, especially compared to paper gold. Among the many different options, from stocks and bonds to real estate and works of art, one of the best is to buy gold. Although I have written on the subject of manipulating the price of gold, I have rarely seen the relationship between the volume of paper gold sales and the physical volume of gold sales.
Experts often cite ingots, ingots and coins as the best way to buy gold because they provide the greatest security to the investor. During the uncertainties caused by financial or political turmoil, many financial institutions that act as counterparties to gold paper will be negatively affected, which will have a chain impact on the value of paper gold. These are just a few of the reasons why you should buy gold, and physical gold is a much more attractive investment than paper gold.