Physical Gold vs Digital Gold: Which Is Better for Investors?

Are physical gold investments better than digital gold? When comparing the two, consider storage, verification of purity, tangibility, liquidity, counterparty risk, costs, and the best use cases, depending on your preferences. 

Physical gold may be a better choice if you want tangible possession of gold or jewellery, or for gifting. Digital gold may be better suited to convenient, small-ticket investments, with easier tracking and seamless accumulation. Let us learn more about it below.

 What is Physical Gold?

Physical gold refers to tangible, real gold assets that can be touched, held, and stored. This includes gold jewellery, bars (bullion), and coins. In this case, you will have direct, total, and personal ownership. 24K (99.9% purity) gold bars or bullion are rectangular blocks used for investment purposes and are sold in weights ranging from 1 gm to 1 kg.

Gold coins are minted by mints, often 24K and are known for their higher liquidity. Then there is jewellery in the form of ornaments like rings, bangles, necklaces, etc. They are often made in 22K (91.6%) and mixed with other metals. 

Coins and bars are regarded as better investments due to their higher, standardised purity (24K) and lower production costs. Jewellery loses 10-15% of its value on resale due to higher manufacturing costs, wastage deductions, and melting charges.

Physical gold is not dependent on the stability of any digital ledger, platform, or financial institution. It ensures tangible, immediate control without any counterparty risk. At the same time, you are fully responsible for the security, safety, and storage of gold. So, there are storage costs and risks of theft or damage to keep in mind. 

What is Digital Gold?

Digital gold is an online investment in 24K gold in smaller denominations. You can buy in grams or rupees (often starting at as low as ₹100), and you can do so anytime, anywhere. There is a digital record of the gold you hold, linked to the gold prices.

The custody of the physical gold backing your investment (99.9% purity) is the platform's responsibility. It is held in an insured and secure vault. You can instantly buy, sell, or accumulate gold through platforms and apps while receiving digital records of your holdings. 

Some platforms also allow you to convert your holdings into physical gold (bars or coins), subject to minimum weight requirements and shipping costs. You can also sell the gold back to the platform, though you will need to account for the spread (thedifference between the buy and sell prices).

From a regulatory standpoint, while SEBI (Securities and Exchange Board of India) regulates gold ETFs and sovereign gold bonds (SGBs), digital gold products are not within its purview. It operates outside the direct regulation and supervision of the RBI or SEBI, since it is not recognised as a commodity derivative or a security.

Without a regulatory mechanism, there is no formal grievance redressal or investor protection framework in place. Many platforms also offer free storage for a limited period, after which you have to take delivery, sell, or pay storage costs, depending on your preferences. 

Physical Gold vs Digital Gold

Comparison That Matters to Investors

Here is a brief comparison between physical and digital gold. 

• Costs

  • Physical Gold: There are higher costs to account for in this case, with 8-25% for making charges on jewellery and about 1-10% for coins or bars. Additional expenditure includes storage costs (bank lockers), insurance, and so on. These may cost between ₹2,000 and ₹15,000 per year. 
  • Digital Gold: While it is generally affordable, a 3% GST is still payable on your purchase. About 2-5% is the buy-sell spread you have to account for, along with storage costs of 0.5-1% annually after the free storage period (usually 3-5 years). If you convert your holdings into physical gold (if allowed by the platform), it will be subject to minting and delivery fees. 

• Purity & authenticity

  • Physical Gold: Purity is more subjective, depending on the seller's credibility and reputation. It requires careful checking and testing, with hallmarking (BIS) essential to ensure the quality. 
  • Digital Gold: It is usually marketed as 24K/999 (99.9% purity) and is backed by physical gold stored in secure, audited vaults. One has to verify the proof through proper certification. 

• Liquidity and resale

  • Physical Gold: Resale in this case may involve wider spreads of 5-10%, particularly for jewellery. It is also dependent on the jeweller's location and policies. There is an element of negotiation involved in the process as well. 
  • Digital Gold: It is easier to sell back your holdings to the platform, ensuring higher liquidity and the ability to buy/sell at real-time market prices. However, it is subject to platform-specific redemption rules and policies. Redemption is often immediate, but there is a buy-sell spread to account for as well. 

• Safety

  • Physical Gold: There is a higher risk of loss and theft. You are responsible for the safekeeping and secure storage of gold in lockers. 
  • Digital Gold: This eliminates the risks of storage and theft, though it involves operational and counterparty risks.

Use Cases

• When physical gold makes sense

Physical gold makes more sense when you want tangible ownership of the asset, or wish to gift actual gold for cultural and sentimental reasons. It offers physical security, so you do not have to worry about counterparty risk (if that makes you anxious). This works if you want an asset for personal use or as an heirloom without the investment aspect. 

• When digital gold makes sense

Digital gold makes sense if you wish to purchase gold in smaller amounts frequently and build an investment portfolio. They work better if you want more investment convenience through apps or platforms, ideal for goal-based savings. They offer higher liquidity and can be sold instantly at market rates. It also avoids security hassles, storage costs (till a certain period), and making charges, with lower premiums. 

However, please note that they are unregulated in India; they do not fall under SEBI's purview. In such cases, you can still invest in gold in a digital format through regulated gold ETFs. They are ideal for active trading on exchanges, such as regular stocks, and offer higher liquidity. 

They are mutual fund schemes tracking the gold price and are also traded on stock exchanges. If you want to invest small amounts regularly via SIPs or trade based on short-term market fluctuations, they may be better choices.

You can buy and sell them immediately during market trading hours, as they do not require any physical handling. Prices are linked directly to market prices in real time, though there are expense ratios to account for and no interest income. 

EGRs (Electronic Gold Receipts) are another form of instruments traded on stock exchanges that represent physical gold stored in accredited vaults. If you want the digital buying benefit with the option to convert to physical gold swiftly, this is a good option. These investments are regulated by SEBI, although they have lower liquidity than gold ETFs. Gold ETFs offer high liquidity and easier trading, while EGRs are suitable for regulated digital holdings with physical conversion options. 

Conclusion

Physical gold retains strong appeal for cultural, emotional, and personal reasons. It offers tangible ownership, no counterparty risk, and is well-suited for gifting, heirlooms, and ceremonial use. 

Digital gold is designed for modern, convenience-driven investing, without the worry of storage or end-of-life purity checks. However, digital gold carries platform and regulatory risks, as SEBI or the RBI does not directly oversee it and choosing a provider and its credibility are critical factors.

For investors focused primarily on investment efficiency, flexibility, and liquidity, digital gold is often a better fit. For those prioritising tangible ownership, tradition, and personal use, physical gold still makes more sense. And if concerns around storage, regulation, or costs outweigh the benefits of both, regulated market-linked options such as gold ETFs or even EGRs offer a more balanced middle ground.