Buying Gold: Physical Vs ETFs

Buying Gold: Physical Vs ETFs

$XAU $GLD

Gold has been valued as a currency, commodity and investment for thousands of years, and is popular among today’s investors because it can be used as a hedge against currency devaluation, inflation, or deflation, and due to its ability to provide a “safe haven” during times of economic uncertainty.

The gold market is highly liquid and there are a number of ways in which investors can gain exposure to this precious metal, including holding physical gold i.e., gold coins and bars and ETFs exchange-traded funds. 

Physical Gold

Physical gold provides the most direct exposure to gold. Gold in bulk form is referred to as bullion, and it can be cast into bars or minted into coins.

Gold bullion value is based on its mass and purity rather than by monetary face value. Even if a gold coin is issued with a monetary face value, its market value is tied to the value of its fine gold content.

Investors can buy physical gold from government mints, private mints, precious metal dealers, and jewelers. Because different sellers may offer the exact same item at different prices, it is important to do your research to find the best deal. When you purchase physical gold, you must pay the full price.

Physical gold ownership involves a number of costs, including storage and insurance costs, and the transaction fees and markups associated with buying and selling the commodity.

There can also be processing fees and small lot fees for investors making small purchases.

While collectively these costs may not significantly affect someone looking to invest a small portion of their portfolio in gold, the costs may become prohibitive for investors seeking to gain larger exposure.

Gold ETFs

Unlike physical gold, ETFs can be purchased like shares on a stock exchange. ETFs allow investors to access gold while avoiding the costs and inconvenience of markups, storage costs, and security risks of holding physical gold. An investor will lose a percentage of his or her investment’s value each year to the fund’s expense ratio.

An expense ratio is the recurring annual fee charged by funds to cover its management expenses and administrative costs. The largest gold ETF – the SPDR Gold Shares ETF (GLD) for example, has an expense ratio of 0.40%. That means an investor will pay $80 per year in fees for a $20,000 investment.

Investors will also pay a commission for buying and selling an ETF. While most online commissions run under $10, the commissions can really add up if you are an active trader.

In addition, brokers typically charge a higher commission that can be upwards of $25 per trade for broker-assisted trades, automated phone orders, and special order types.

To address investors’ concerns regarding ETF commissions, some brokerages now offer commission-free online trading for a specified suite of ETFs.

There are more than 12 gold-specific exchange-traded products available today, including inverse and leveraged ETFs.

Keep in mind that you do not own any physical gold even if you invest in a physically-backed ETF: you cannot redeem or sell shares in exchange for gold.


As of 14 February 2020 GLD is the largest and 1 of the most affordable gold funds by expense ratio:

SPDR Gold Shares (GLD)
The SPDR Gold Shares ETF is designed to the spot price of gold bullion and the fund holds 100% physical gold held in HSBC’s vault in London. GLD, which was launched on 18 November 2004, has an expense ratio of 0.40% and total net assets of $46-B. 

The transaction costs associated with gold ETFs are often lower than the costs related to the purchase, storage, and insurance of physical gold. It is important to research the various costs, fees, and associated expenses of each type of investment to determine the 1 that is both affordable and suitable for your portfolio.

Have a terrific holiday weekend.

The following two tabs change content below.
HEFFX has become one of Asia’s leading financial services companies with interests in Publishing, Private Equity, Capital Markets, Mining, Retail, Transport and Agriculture that span every continent of the world. Our clearing partners have unprecedented experience in Equities, Options, Forex and Commodities brokering, banking, physical metals dealing, floor brokering and trading.