What Are The Pros & Cons of Buying Physical Gold vs Investing In Gold-Backed Securities?

Gold is a remarkable asset with significant cultural, financial, and economic significance that goes well beyond being just a commodity. Gold has maintained its intrinsic value over the ages, making it a dependable source of wealth. Because of its rare nature and durability, gold serves as a hedge against inflation and currency devaluation and is a timeless representation of prosperity and stability. Digital gold, physical gold, and gold exchange-traded funds (ETFs) are the three most common ways to invest in gold in India. Based on an interview with Mr. Keyur Shah, CEO, Muthoot Exim, here is a deep comparison of the pros and cons of buying physical gold (coins, bars) versus investing in gold-backed securities (ETFs, futures).

Pros and Cons of Physical Gold (Coins, Bars)

Pros:

Tangible Asset: One of the biggest advantages of physical gold is that it is something you can hold in your hand. Especially in times of economic uncertainty, having a physical asset feels more reassuring than something abstract like paper money or digital assets.

No Counterparty Risk: If you own physical gold, you are not dependent on a bank or financial institution to back up your investment, thus eliminating the risk of some third party failing and affecting your wealth.

Privacy and Control: With physical gold, you are completely in control of what to do with your wealth. There is no need for a middleman, and you won't have to lose sleep over your gold being stored in someone else's vault. Buying or selling gold can often be more discreet than dealing with digital assets.

Cons:

Storage and Security: You may have to incur additional expenses for a safe deposit box or guarding it at home, not barring the dangers of theft and damage.

Additional Costs: Owning physical gold is not free. Aside from the price of gold itself, you may be required to pay for insurance, storage, and maintenance; this will all slowly eat into your returns.

Pros & Cons of Gold-Backed Securities (ETFs, Futures)

Pros:

Liquidity and Convenience: Gold-backed securities in the form of ETFs can be traded much like stocks, thus they are extremely convenient for all kinds of investors. There is no need to worry about storing anything; it can be traded within seconds with just the click of a button.

Lower Transaction Costs: There are virtually no storage, insurance, or security fees to pay when buying ETFs, that would usually apply to physical gold. Hence, that would entail much fewer external costs benefiting your pocket.

Diversification and Accessibility: Gold-backed securities are an excellent choice for newcomers investing in gold or those wishing to diversify their portfolio types. It offers an opportunity for gold investment, without physically stocking it, making it even better from the view of space and resource pool considerations.

Cons:

Management Fees: Many gold-backed ETFs charge annual fees that come off essentially as management fees; with time, these fees can eat into your profits. Though the fees vary tremendously, one should keep it in mind as regards long-term investment.

Counterparty Risk: While you need not worry so much about the risk of physical theft, with gold-backed securities, you face counterparty risk-meaning you have to rely on the financial institution or the fund performing properly in the management of that gold. If something happens to the institution, this will have a very serious impact on your investment.

Lack of Physical Ownership: If you aim to actually possess some gold, it will not be achieved through ETFs and futures and certainly can be a deal breaker. You will be investing in a representation of gold rather than in the actual physical thing, which can be a make-or-break factor for some people who prefer physical assets or hold serious scepticism about the financial system.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.