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Investing in Gold Bullion Versus Paper Gold

For those who want to invest in precious metal, gold has been a favorite option pretty much throughout history and all around the world. There are two prevailing ways to invest in gold today: so-called “paper gold” and gold bullion. If you’re wondering which way to go, let’s take a quick look at the issue of gold bullion versus paper gold.

But first, a disclaimer: Please don’t take anything here as financial advice. We’re not your financial adviser. Investing is a personal thing, and the best strategy will depend on your individual circumstances and goals. Always seek personalized investment advice from a qualified professional. What we’ve written here is just for informational purposes.

As you’d expect, there are pros and cons to both forms of gold investment. So, we’ve listed some of the advantages of each one to help you better understand the gold bullion versus paper gold debate and get an idea which side you might come down on. Of course, you can always invest in both.

What Is Gold Bullion?

“Bullion” is a form of a metal that’s been refined to a high level of elemental purity. Gold bullion is physical gold—real, tangible gold—and it generally comes in two forms for investors: gold bars and gold coins.

What Is Paper Gold?

Paper gold refers to investment in the gold market without possessing physical gold. This includes investment vehicles like many exchange traded funds (ETFs), gold futures, gold options, and others. It’s an on-paper asset that typically derives its value from the price of gold.

Gold Bullion Versus Paper Gold: Advantages of Holding Physical Gold

Physical gold, or gold bullion:

  • Has intrinsic value, unlike paper gold
  • Has been accepted as a form of currency throughout history, around the globe, and across cultures
  • Is scarce and can’t be replicated
  • Is simpler than dealing with paper assets
  • Isn’t subject to broker fees, account management fees, etc. like paper investments
  • Isn’t vulnerable to mismanagement by third parties like paper assets
  • Is easier than paper gold to give as a gift or pass on to an heir
  • Diversifies your investment portfolio beyond paper assets
  • Can be used as collateral
  • Has actual demand for use (e.g., jewelry, decorative pieces, dental fillings, computer and other electronics manufacturing, medals, and more)
  • Isn’t part of a country’s financial system (even though gold coins and bars are often minted by government-owned mints), so it’s not vulnerable to the volatility of national financial systems; paper gold is often more vulnerable to volatility resulting from geopolitical issues

Gold Bullion Versus Paper Gold: Advantages of Holding Paper Gold

Paper gold:

  • Doesn’t require secure storage (either at home, or at a bank or other facility that will charge a monthly storage fee and likely require insurance)
  • Can’t be stolen like physical gold
  • Doesn’t take up any space or have to be moved
  • Requires less upfront capital because you can generally buy smaller amounts
  • Is also more affordable up front because physical gold dealers usually charge significant premiums/fees
  • Is a highly liquid investment vehicle that’s easily traded while the market is open
  • Isn’t vulnerable to the possibility of a government forbidding the possession of physical gold (it even happened in the U.S., when President Franklin D. Roosevelt signed Executive Order 6102 in 1933, and it held until President Gerald Ford repealed it in 1974)
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