Difference Between Physical Gold vs ETF

Buying Physical Gold vs. ETF: What’s the Big Difference?


Written by John Rothans

Feb 24, 2021

Maybe silver’s recent rally has you thinking, researching, and investigating. When there’s demand for a precious metal, will that metal be available to you? And at what price? How can you go about buying gold when you want to, and what’s the best form to buy it in? Physical gold or ETFs? As America’s Gold Authority®, we compare and contrast the two to help you decide.

Physical Gold vs. Gold ETF

Here are four of the key differences between physical gold and gold ETFs.

1. You can touch physical gold.

One of the most obvious differences between physical gold and a gold ETF (exchange-traded fund) rests with the word “physical.”

“Some gold ETFs directly track the price of gold, while others invest in companies in the gold-mining industry,” NerdWallet explains. Either way, you can’t touch any gold that might be tied to an ETF.

Purchasing physical gold lets you literally hold and store the yellow metal in your home. When you have an ETF, however, you own shares of companies that hold or mine gold. These shares are actually more like units, Nasdaq notes: “These ‘units’ can be traded back and forth just like stocks, but can also be created or destroyed to accommodate investor demand.”

Physical gold can be neither created nor destroyed. This means all of the gold that’s been mined is still in existence in one form or another.

2. Physical gold stands apart from many market pressures.

ETFs and other “paper” stocks experience market volatility, and many financial analysts are concerned that there’s a huge disconnect between stock market prices and reported earnings. Two thirds of market participants believe that we’re “fully or somewhat in a market bubble,” according to a recent E-Trade survey, with three in five market participants anticipating that volatility will increase this quarter (Q1 2021).

To illustrate, there’s a mismatch between stock prices and earnings in the energy sector right now. Clean energy stocks are at “unprecedented levels”—but “behind the skyrocketing valuations of electric-vehicle and battery makers is a sobering reality: companies hemorrhaging money,” YahooFinance reports. Could this ever happen to gold ETFs?

In addition, the long-term value of paper money, including the U.S. dollar, is diminishing as governments continue to print currencies. As mentioned previously, physical gold can’t be created or destroyed and thus isn’t subject to the same price pressures as paper assets.

“For those individuals who prefer owning physical gold or silver, with the ability to one day take possession of their actual metal, purchasing physical bullion is the preferred choice,” according to The Entrust Group.

3. Physical gold can be mined but not created.

More physical gold can be mined but not generated. Throughout history, nearly 198,000 metric tons of gold have been mined. Around 50,000 metric tons remain to be mined. In other words, there’s a finite supply of gold. Gold can’t be replicated or destroyed.

The more people want gold, the less gold is available. When gold becomes harder to obtain, this typically drives up prices. It happened to silver early in 2021 when demand for silver outstripped supply, sending silver prices to a nearly eight-year high.

Meanwhile, new gold ETFs can and do pop up; they’re still not a hard asset. This makes you wonder whether the precious metal’s paper form can truly compare to the hard asset of physical gold.

“The best reason to own gold is as a hedge against risk. It can be your last line of defense in an economic crisis—a form of wealth insurance, if you will,” Forbes reports.

“But since gold ETFs are part of the very banking system you need protection from, you must ask yourself if they serve one of the primary purposes for owning gold.”

Forbes also notes that gold is easy to convert to cash, as well as being a portable, durable, and private and confidential asset.

4. Physical gold enjoys a long track record.

Gold ETFs first emerged in 2003. Gold itself, however, has been around for more than 5,000 years. Which one elicits more trust? You can see how physical gold has performed for centuries. You can’t say the same for gold ETFs.

“History has proven that as a currency loses value due to inflation or other factors, the price of physical metal has increased against the devalued currency,” The Entrust Group reports.

The recent rally in silver prices is just one example of precious metals demand practically outpacing current supply. Could the same thing happen to gold? Would you rather own the actual physical asset or a “representation” of it in the form of paper ETF? Call now to secure physical gold for your portfolio today.


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