Physical Gold vs. Gold ETF Investing: Which Is Right for You?

• Gold ETFs are backed by physical gold held elsewhere and trade like stocks.
• Gold ETFs incur ongoing fees.
• Gold ETFs have higher liquidity.
• Physical gold offers peace of mind and protection from economic downturn.

Is a gold ETF a good investment, or would your money be better spent on physical gold bullion? Both offer their own unique benefits, so there’s no right or wrong answer.

Of course, as a Tier 1 U.S. Mint precious metals dealer, we’re inclined to recommend physical gold. With that said, we recognize that every investor has unique needs, preferences, and goals.

In this blog, we highlight the benefits of investing in a gold ETF and physical gold so you can make an informed decision based on facts. As always, we’re just a phone call away if you have any questions. Let’s dive in!

What Is Gold ETF Investing?

An ETF (exchange-traded fund) is a type of investment fund that holds assets such as stocks, bonds, currencies, real estate, or, in this case, gold.

Rather than owning tangible gold bars or gold coins, you own a share of gold that’s held and managed by the ETF company. An ETF is kind of like a receipt that proves that a portion of gold held elsewhere belongs to you.

Gold ETFs trade on the stock market, and their value follows the spot price of physical gold. However, gold ETF vs. physical gold returns aren’t always exactly the same.

Which Gold Investment Vehicle Is the Better Buy?

Gold ETF investing does have its perks, but in our opinion, the drawbacks far outweigh the benefits. With physical gold, you pay for your gold once, and then you own it for life. That’s not the case with gold ETFs.

Is a gold ETF a good investment for long-term holders? A major problem with a gold ETF is that you’re stuck paying an ongoing expense ratio, which includes various annual fees that go to the fund’s manager.

These fees are automatically deducted from the overall value of your holdings. Expense ratios for gold ETFs typically range from 0.09% to 0.65%, which may seem like a small figure, but those expenses add up over the years, especially with larger investments.

Simply put, Gold ETF investing isn’t a one-and-done investment like physical gold. Although physical gold does have a slight markup, and you may need to pay for storage and insurance, you never have to worry about recurring expense ratios. You manage your holdings entirely on your own.

Which Gold Investment Vehicle Has Higher Liquidity?

One of the biggest benefits of investing in a gold ETF is that your investment can be sold virtually instantly, should the need arise. Gold ETFs trade just like stocks, so you can simply sell your share on an online platform or smartphone app.

Although there’s no denying that Gold ETF investing wins when it comes to liquidity, physical gold is still highly liquid. You shouldn’t have any problems finding a buyer if you decide to sell some or all of your holdings.

Physical Gold Offers Peace of Mind

Is a gold ETF a good investment for periods of economic downturn? A major problem with gold ETFs is that they’re inherently part of the electronic financial system. If things get really bad with the stock market, for example, there’s a good chance your ETF would be affected, too.

On the other hand, physical gold is a famously dependable investment that acts as an independent safe haven during tumultuous economic times, such as banking crises, recession, and inflation.

Gold ETF investing is technically backed by gold’s stability, but if you can’t actually see and hold the gold, do you really own it? Sure, you’ll have no problem selling shares during normal market conditions, but in a worst-case scenario, you could run into serious problems.

If a significant systemic economic crash should occur, you’ll feel much better knowing your wealth is protected by actual gold, rather than numbers on a screen.

Collecting Physical Gold Is Rewarding

As you determine your next move, the difference between gold ETF vs. physical gold returns, liquidity, and accessibility should naturally be top priorities. However, it's still worth noting that Gold ETF investing just doesn’t have the same allure as starting a coin collection (or bar collection).

Gold coins and bars are breathtaking collectibles. They have unique and fascinating designs, origins, and histories. Of course, investing generally takes precedence over collecting, but don’t overlook the fun side!

Physical Gold Is Proven to Exist

Is a gold ETF a good investment for people who have a low risk tolerance? No. Another big problem with gold ETFs is that fraud and scamming are prevalent issues that you need to watch for carefully.

All too often, investors purchase gold ETFs, only to eventually learn that the ETFs weren’t actually backed by real gold at all. Or, a scammer may sell shares in supposed gold ETFs that are actually gold futures or derivatives.

Gold ETF investing, like physical gold investing, requires that you do your due diligence. Whether you’re choosing a precious metals dealer or an ETF broker, verifying that you’re working with reputable individuals, businesses, and organizations is paramount.

Contact Us for a Free Consultation

If you’re still not sure which investment vehicle is right for you, get in touch for a free consultation. We can answer your questions and help you select gold products that align with your plans. Opening a precious metals IRA is another option that we can help with.

Ultimately, in our opinion, the benefits of investing in a gold ETF just don’t compare to owning tangible gold. Gold ETF investing is undeniably convenient, but private gold ownership ensures that your holdings are safe and accessible during stormy economic conditions. Protect the value of your assets with the gold standard!