That’s a question that comes up often from both new and seasoned investors. Well,
experts agree that the whole point of owning gold is safety, wealth protection and portfolio
diversification. There are 2 choices available for Gold investors in the market
-1) Physical Gold which is similar to an investment in a precious metal. A physical gold has an intrinsic value. T Although the price of Gold moves quickly, the physical Gold market is more solid
2) Paper Gold :- Paper Gold is similar to stock market. Paper Gold is available in the form of Gold stocks,Gold ETFs and Gold futures.
Gold is also available in the stock market in the form of Gold stocks or in the form of Extended Traded Funds (ETFs),futures contracts, gold swaps, leasing unallocated gold.
In ETF, a tracker reproduces the same variations as the index that tracks the price of gold..
With a futures contract, the price and quantity of gold is fixed on the day of the deal and settlement occurs later (usually 3 months), at the time of delivery.
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Does Paper Gold give you the right to Physical Gold?
Paper gold gives you the right to physical gold . But the reality may be different. Gold bonds or certificates are far more than the actual or physical gold available. At the start of 2021, the ratio of physical gold to paper gold was 1:250 and this could pose serious problem in the event of serious economic crisis or stock market crashes, the recovery of your physical Gold from paper gold may be compromised.
And if the company in which you have invested in paper gold goes bankrupt, you may be even lose all your investment.
Although the paper gold has some advantages like liquidity,convenience,safety and affordability and price efficiency , the physical Gold scores over the paper gold in the following ways :-
1) Limited Supply , Cannot be created at will :- Physical gold are limited and they cannot be created at will whereas paper gold in the form of Gold stocks, gold ETFs and Gold futures are far more than the actual gold available and can be created at will.
2) Can be used as a form of currency worldwide: – Physical gold can be used as a universal currency that means it can be used as a currency worldwide. Paper gold cannot be used as a currency worldwide.
3) No counterparty risk :- Counterparty risk is the risk that the other party in an agreement will default or fail to live up to its obligations. Physical Gold reduces the counterparty risk as you own the assets.
Whereas, when investors buy paper gold they are relying more on financial institutions to deliver on their obligations. If the financial system collapses, paper gold is simply not safe.
4) Lives outside the financial system :- Physical gold can be stored outside the financial system and as such it is immune from the collapse of the stock markets.
5) Can be stored anywhere in the world and “safe haven” jurisdictions: Physical gold can be stored anywhere in the world and you have protection against banking or economic crisis.
6) Liquidity :- Physical Gold is highly liquid as compared to gold stocks and gold futures.
7) Precious metals provide stability during volatile times :- Precious metals like gold and silver offers more stability than paper gold during volatile times. The extreme highs and lows of the stock market often lead investors towards safe-haven assets, like bullion. Historically, the Precious Metals market has an inverse relationship with the stock market, meaning that when stocks are up, bullion is down and vice versa.
This inverse correlation holds firm even when the stock market has crashed. Though Gold and Silver don’t automatically rise with every fall in the stock market, history points to bullion as a hedge during stock market declines. Bullion allows you to be prepared for such catastrophes, providing you with a hedge against economic uncertainty
8) Precious metals hold their value and protect your future:– Gold is timeless as it is invaluable since the beginning of human race. I is unalterable that is it resists aggression of time and does not deteriorate. You can buy and sell it more easily.
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