There’s a gold civil war taking place right now — one we lovingly call the Clash of Paper Gold vs. Physical Gold.
On one side, speculators play the game of futures and options markets. On the other side, physical investors are buying bargain-priced gold bullion in record numbers as a hedge against future instability.
Each side stands firmly opposed against the other. But do you know where you stand in the debate between paper and physical gold?
Before you pick a side, let’s get acquainted with the argument.
What is Paper Gold?
Physical gold — along with its cousins silver, platinum, palladium and others — are just what they sound like: metal you can physically hold in your hand, usually in the form of coins or bars.
Paper gold is a bit more complicated.
The term “paper gold” describes any assets substituted for physical gold bullion. Simply put, when you own paper gold, you can’t hold it in your hand. Rather you possess a promise to receive the specified amount of physical gold sometime in the future.
Examples of paper gold include exchange-traded funds (ETFs) and futures contracts.
Why People Invest in Paper Gold
Investors get involved in paper gold for a number of reasons. One is that brokers can buy and sell futures and ETFs in a matter of seconds — much quicker than physical gold — and it allows investors to participate in the market and earn gains without the requirements of physical ownership, such as storage and transportation.
Paper gold can also be less expensive than physical gold. When you purchase real gold, you pay a premium above the spot price to cover transportation, storage, and refining. Premiums vary by vendor, the level of demand, and the quantity of physical gold you purchase.
With paper gold, the markup of the spot price is usually minimal to none. Typically, you just have to pay a small commission to the broker, like you would when buying stocks.
The Drawbacks of Paper Promises
For every advantage of investing in futures and ETFs, there are just as many disadvantages — if not more.
For instance, while paper gold investors profess to own a claim of physical gold, in most cases it is extremely difficult to get their hands on the metal when they request it.
With paper trades, you are buying and selling gold that physically exists at just a fraction of the amount being exchanged, if it exists at all. So if throngs of investors decide to trade in their paper shares for physical gold all at once, some may not be able to redeem it.
What This Means For You
In the end, deciding where you stand on the paper gold vs. physical gold debate depends largely on why you chose to invest in precious metals in the first place.
If you are interested in investing for the easy, short-term play, then sticking with futures, ETFs, and other types of paper gold may be right for you
But if you truly want to secure the value of your investment against unforeseen social or political catastrophes, the devaluation of the dollar, and out-of-control inflation, then the bottom line is you need physical gold and silver — not paper.
Visit our knowledge center to learn about 4 benefits of investing in physical gold and get straight answers to all of your investing questions. Browse our secure online store to secure your financial future with gold bullion, silver coins and more.
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I really appreciate your tip on how physical silver and gold are going to be better investments for the long-term. My wife and I have been thinking of getting a new house, and we are concerned that we won’t be able to have an adequate savings account after the down payment. If we put our savings in gold and silver, I will be sure to tell my wife that we won’t have to stress in the long run!