Investing in Gold? 5 Differences In Buying Physical Gold Vs ETFs

18 June 2024
3 min read
Investing in Gold? 5 Differences In Buying Physical Gold Vs ETFs
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Investing in gold is a common strategy for portfolio diversification and market risk management. However, there are various ways to invest in gold, with Physical Gold and Gold Exchange-Traded Funds (ETFs) being two of the most popular choices.

Each has benefits and drawbacks, and knowing the distinctions is essential to making a wise investment choice.

In this blog, we will evaluate two options for investing in Gold – Physical Gold Vs ETFs and discover their fundamental differences.

Investing in Physical Gold

Physical gold entails buying coins, bars, or jewellery made of metal. Physical gold's worth is determined by its weight and purity, typically measured in troy ounces.

Therefore, it is crucial to consider costs associated with manufacturing, storage, and insurance when investing in physical gold because these expenses might affect the overall cost of ownership.

Inflation and economic instability are two things that physical gold is frequently considered as a hedge against. Thus, investors may hold physical gold as a long-term investment or short-term plan to lessen market volatility.

Investing in ETFs

Like individual stocks, investment funds known as ETFs (Exchange Traded Funds) are traded on stock exchanges. ETFs invest in a diverse range of assets, including currencies, commodities, stocks, and bonds.

Specifically, gold ETFs invest in actual gold or derivatives of gold, including futures contracts, to track the development of the gold price.

Investors who invest in gold ETFs buy shares of the fund, which are traded on the stock market and whose value is based on the price of gold.

Gold ETFs may be a better choice for investors searching for a more liquid and tradeable investment alternative since they may provide exposure to gold without holding real gold.

Key Differences Between Physical Gold & Gold ETF

What is the difference between Physical Gold and ETF?

Physical Gold and ETFs are two distinct concepts, so let us examine the main variations between gold ETF vs physical gold.

Characteristics

Physical Gold

ETFs

Meaning

Physical Gold is defined as gold bought as coins, bars, or jewellery and entirely held by a person or organization.

A diverse portfolio of gold or gold-related assets, such as futures contracts, is invested in by Gold ETFs, investment vehicles traded on a stock market.

Cost

Manufacturing, storage, and insurance expenses result in a higher initial cost.

Initially less expensive, but may also involve brokerage costs.

Liquidity

Selling and obtaining money may take longer.

It can be quickly sold on the stock market.

Counterparty Risk

No counterparty risk is involved.

If the ETF is not backed by actual gold, there may be a counterparty risk.

Accessibility

Conducting remote or digital transactions with physical gold could not be easy.

ETFs are digitally available for purchase and sale through brokerage accounts.

Investment Size

Transaction fees and premiums may be more significant for smaller investment quantities.

It is simple and inexpensive to trade smaller investment quantities.

Market Risk

Value variations depending on supply and demand may occur.

Based on the performance of the ETF, value can fluctuate.

Summing Up Physical Gold vs Gold ETF    

Diversifying a portfolio and hedging against inflation and economic instability may be accomplished by investing in gold. Therefore, it is critical to comprehend the distinctions between Real Gold and Gold Exchange-Traded Funds (ETFs) when considering investing in gold.

Although there is no counterparty risk with physical gold, it does come with storage and insurance costs. Finally, a well-diversified portfolio can benefit from including gold investments, regardless of the selected investment method.

Happy Investing!

Check More ETFs

NYSE Fang+ ETF

HDFC Nifty Smallcap 250 ETF

Tata Silver Exchange ETF

MON100 ETF

ICICI S&P BSE Midcap ETF

Nippon Silver ETF

Nippon India ETF

Reliance Gold ETF

Gold ETF

SBI Mutual Fund Gold ETF

SBI ETF BSE 100

Bharat Bond ETF

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