Gold ETF’s VS Physical Gold Ownership
The following article is created by Orion Metal Exchange for the benefit of our investors and perspective investors alike. We seek to provide relevant content concerning precious metals and the impact caused by the economy and geopolitical trends that will most likely place impact on your financial future. If you are interested in learning about precious metal investing, call 1-800-559-0088, for a FREE investor kit.
It’s important to understand the difference between owning physical gold and speculating with gold ETF’s. Let’s review the differences between physical gold as a hedge and speculating with gold ETF’s.
Counterparty Risk
The definition of counterparty risk is the likelihood or probability that one of those involved in a transaction might default on its contractual obligation.
If you own a gold ETF, you must rely on a counterparty to make good on your investment. If the fund’s management, structure, chain of custody, operational integrity, regulatory oversight, or delivery protocols break down, your investment is at risk.
There is no counterparty risk when you own physical gold. No one is borrowing or loaning against your precious metal ownership and your investment is beholden to no one.
Gold ETF vs Physical Gold Ownership
An ETF allows an investor to add a paper gold position to their portfolio without purchasing physical bars or coins. While this may be efficient for many investors, some may find it difficult to accept that the ETF shareholders have no rights of redemption. Which means that the investors do not own physical gold, rather a paper asset that is backed by gold. Even though the bars of gold are represented to exist in an ETF, an investor cannot receive gold or verify the gold existence or purity.
When you own physical gold, you own the tangible asset. You can verify purity and product. You know exactly where your physical gold is located. You are the official asset owner and can take physical possession of the asset.
Unlike gold ETF’s, physical gold ownership enables investors to have complete control of their tangible precious metal assets.
Summary
A gold ETF is different from owning physical gold. An ETF offers the ability to trade paper based on the price movements against gold. You never own tangible gold with an ETF, and there are no guarantees with up to 100 paper investment claims per each physical ounce of gold. If you’d like to gamble or speculate, then consider a gold ETF. If you are looking to hedge and stabilize, consider owning physical gold.
FAQ: Your Key to Understanding!
How does the liquidity of gold ETFs compare to physical gold?
Gold ETFs must be bought and sold during market trading hours to guarantee purchase and sale pricing. Unfortunately, there is no way to know where the gold that supposedly backs the ETF is physically located. Gold ETFs cannot deliver the physical asset to an investor under any circumstances. In contrast, physical gold is liquid and locatable. Physical gold is deliverable and fully insured when in storage or when shipped for delivery. It’s important to mention, the US stock market halted trading for four days due to the 911 terrorist attack, and stocks could not be bought or sold. However, physical precious metals remained liquid during that time.
Is it better to buy physical gold or a gold ETF?
The decision between physical gold and gold ETFs depends on individual preferences and investment goals and risk tolerance. Physical gold offers tangible ownership and should be utilized as a hedge to help stabilize an investment portfolio as a cost-effective long-term investment. In contrast, gold ETFs are considered speculative and more costly when implemented in a long-term investment strategy.
What transaction services does Orion Metal Exchange offer?
Orion Metal Exchange offers transparency in pricing, procedure, and policy. Our purchase and sale pricing can be verified online and guaranteed with a phone call. We offer insured home delivery, insured commercial storage options, and a dedicated in-house IRA department to facilitate all your precious metal retirement account needs.
Orion Metal Exchange presents this article for both our investors and perspective investors, offering insights into precious metals and their relevance amidst economic and geopolitical trends. To explore precious metal investing further, dial 1-800-559-0088 for a FREE investor kit.
Contact us today to know more about our services.
