As the CEO of America’s Gold Authority®, I make it part of my job to look beyond the headlines and hear what our clients are saying about gold and the precious metals marketplace. And one of the most popular questions we hear is: “Should I buy physical or paper gold?”
The term “paper gold” is sometimes used to describe several products, including gold exchange-traded funds (ETFs) and unallocated gold. Unallocated gold, which has been in the news recently because of a new wave of international regulations, refers to physical gold held by a bank but technically owned by an individual. Essentially, unallocated gold is nothing more than a gold “IOU.”
Paper gold may seem convenient, but it also puts your “gold” in someone else’s hands.
While paper gold is a relatively new way for people to put money into the precious metal, there may also be more risk involved when leaving your gold’s future up to someone else. For example: In the case of unallocated gold, some banks are only required to keep a fraction of the physical gold their customers “own.” As Kitco News’ Anna Golubova put it on June 22, 2021, “Unallocated gold can be sold 20 times to 20 people.” It’s commonly assumed that if everyone with unallocated gold went to retrieve their precious metals at the same time, banks would have to scramble to find enough gold to cover their tab.
Gold ETFs can share some of the same risks as unallocated gold. With a gold ETF, your asset may once again be tied to banks and the U.S. financial system, which can be impacted by market factors such as inflation. For many, owning physical gold can help protect their portfolios against some of these market risks.
With physical gold, you take your financial future into your own hands.
With physical gold, you can literally hold your wealth in your hands. You get to choose whether to store it at home or with a financial institution, and in both cases, you know the real thing is right there waiting for you. Even with a self-directed precious metals IRA, where your gold is held by a custodian, it’s real, physical gold waiting for you—not a piece of paper.
Physical gold allows you to diversify outside of the traditional financial system and does not require a computer system to tell you how much gold you own. It carries no counterparty or third-party risk. It can be privately handed down from generation to generation, allowing you to directly pass your wealth on to your children and grandchildren.
Perhaps most importantly, gold has a proven ability to preserve its purchasing power that the U.S. dollar has simply never matched. Physical gold has a track record as a store of wealth that goes back for thousands of years, and many experts feel confident that it will continue to be used as a store of wealth for thousands of years to come.
In the end, your choice comes down to what gives you the most comfort and security—the things you can control and hold in your own hands or the things you can’t?
According to an article by The Wall Street Journal published on July 15, 2021, “Federal Reserve Chairman Jerome Powell said recent inflation was uncomfortably above the levels the central bank seeks.” The article quotes Powell as saying that current levels of inflation are a “shock going through the system…. And of course we’re not comfortable with that.”
Should you put your money into paper gold or physical gold? Our clients continually tell us they would rather put their trust in themselves—and in the time-tested power of gold—instead of in a financial system that seems to be under constant attack by cyber-criminals and under growing pressure from market factors like inflation.
As our nation continues to print more money and accumulate more federal debt, I encourage you to keep one thing in mind when diversifying with gold: As far as I’m concerned, there is no substitute for the real thing.