Understanding the nuances between physical and paper bullion ownership.
Gold is an investment for all times.
For centuries, precious metals, particularly gold, have been viewed as a safe, secure, and essential investment asset class. As a recent post from the Forbes Financial Council outlines, “A $100,000 investment in gold in 2000 has the purchasing power of about $535,000 in 2021. Whereas $100,000 left in cash in 2000 would buy roughly $65,000 worth of goods in 2021.”
Buying into gold doesn’t necessarily mean you own gold.
With gold increasingly being offered as an investment option by banks, it is essential to understand the critical differences between owning physical bullion vs. paper gold. While both offer the advantages of diversification, the intrinsic nature of physical bullion provides added benefits above and beyond owning gold “on paper.” Let us understand a few reasons why.
- Physical bullion is just that—real, tangible, something you can touch and see. Due to real-world scarcity, there is intrinsic value in the physical asset. In contrast, paper gold refers to an asset that reflects the price of gold and not the precious metal itself. Essentially, the paper acts as a substitute for the real thing. Paper gold includes gold futures, gold options, and exchange-traded funds.
- Physical bullion operates outside the global financial and monetary systems and has no counterparty risk. Thus, physical gold acts as a shield and haven against geopolitical and macroeconomic disruptions. This is unlike paper gold, which is much more vulnerable to systemic shocks since they’re much more closely tied to global financial and monetary systems.
- Physical bullion acts as a more robust hedge against inflation than paper gold. Under economic duress, financial institutions that act as counterparties to paper gold usually are negatively impacted, with a knock-on effect on the value of paper gold. On the contrary, the value of physical gold is not affected by inflation, making it a reliable hedge against inflation and currency risks that would otherwise adversely impact paper gold.
- Ownership of physical bullion, like owning a house, provides investors with complete control. Paper ownership functions like any other investment product, usually managed by a fund that theoretically tracks the price of gold, rising and falling alongside.
- The traditional advantage of paper gold is convenience. Seen as easy to buy, relatively liquid, and with overall lower acquisition and ownership costs than physical bullion, investors see paper gold as an attractive compromise, without the need to concern themselves with high trading and storage fees.
We at SGPMX have innovated an ecosystem that does away with these traditional barriers to make owning and trading physical bullion as easy as paper gold.
The argument against owning physical bullion has always been its lack of mobility, its illiquid nature, and its purchase and storage hassles. Our pathbreaking innovations—a P2P trading platform, 24/7 access, and fractionalized trading—work together to make these concerns a thing of the past. Grounded in physical bullion, our next-generation solutions span wealth preservation, tailored value creation, and lifestyle privileges unlike any other.
Arming our global clientele with the power of physical bullion, reimagined for today’s world.
Gold’s tangibility and reliability continue to give our clients unrivaled peace of mind and a security apparatus that stands the ultimate test of value over time. Real gold, in the form of bullion or a fraction of it, with intrinsic value that matures, that’s wholly and only owned by our clients, now comes with the same convenience, liquidity, and lower fees as paper bullion.
NB, this article is neither investment nor tax advice. Before investing, please conduct your research and speak to a registered and qualified financial adviser. If you are interested in learning more about bullion, SGPMX, and how our offer may benefit your portfolio, do not hesitate to get in touch with us.