Physical Gold versus Paper Gold

Buying physical gold is just one method of gaining exposure to gold and silver:

By purchasing physical bullion, buying shares in an exchange traded fund (ETF), a traditional fund or mining company, or riskier option such as spread betting, futures or contracts for difference (CFD).

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Gold Pyramid of risk


Which option is best for me?

Each option of exposure to precious metals has its merits. The right choice will depend on your individual objectives. For example, if you have a high appetite for risk, then you may fancy your luck investing in a mining company.

Alternatively, if you’re looking to actively trade the market, then electronic options such as ETFs will be the most efficient way to achieve the short-term speculation.

However, the most powerful benefit offered by gold and silver, is balance and protection.

As well as professional traders, regular, everyday people buy gold and silver to REDUCE their overall risk.

Electronic and paper options provide investors with exposure to the market, but they also present additional risks. This undermines the value of gold & silver as a crisis hedge, or as portfolio insurance in the first place.

Physical gold and silver coins are by far the safest way of providing long-term stability. They present the most secure method of protecting your family’s wealth in a tax efficient way.

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Advantages Disadvantages
Derivatives (Futures, CFD, Spread Betting) Potential for very high gains Speculative. Can be very complicated and high risk. Could lose more than originally invested
Mining company Potentially higher gains than the price of gold or silver with possible annual dividends. Counterparty risk. Potentially high risk & returns may rely on new mines coming online, which may take many years.
Fund Well-established, easy to access & well regulated.  Could smooth downside volatility, as not all assets are invested in physical gold or silver. Counterparty risk. Gains and losses could be larger than fluctuations in the gold or silver price. Annual management charges.  Usually they don’t hold gold or silver as physical assets. Will be invested more generally in precious metals.
ETF Relatively cheap, fast and easy to buy and sell. Could smooth downside volatility as not all assets are invested in physical gold or silver. Counterparty risk. May not be fully physically backed.  Difficult to take personal delivery of gold or silver.

Gains and losses could be larger than changes to the metal price.  Annual management charges

Physical Gold & Silver No counterparty risk. Tangible asset with an intrinsic value.  VAT free if stored in Channel Islands.  UK coins are CGT free. Relatively expensive. Premium at purchase.  On-going storage.  Insurance.
10 commandments when selling gold coins