When it comes to investing in gold, two of the most popular options are gold ETFs and physical gold ownership. Each approach has distinct advantages and drawbacks that investors should understand before making a decision.
Gold ETFs: Convenience and Liquidity
Gold ETFs like SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) allow investors to gain exposure to gold prices through their brokerage account. There’s no need to worry about storage, insurance, or physical security.
ETFs offer excellent liquidity — you can buy or sell shares instantly during market hours. They also allow fractional exposure, making them accessible to investors of all sizes. Management fees are relatively low, typically 0.25-0.40% annually.
Physical Gold: True Ownership
Physical gold provides something no paper asset can — actual possession of the metal. In a scenario where financial systems are disrupted, physical gold retains its value independently of any institution, exchange, or technology platform.
Physical gold carries no counterparty risk. You don’t depend on a fund manager, custodian, or exchange to honor your claim. However, you do need to address storage and insurance, and buying/selling carries higher transaction costs due to dealer premiums and spreads.
Tax Considerations
In the United States, gold ETFs structured as grantor trusts (like GLD) are taxed as collectibles, with a maximum long-term capital gains rate of 28%. Physical gold is also taxed as a collectible. However, certain gold coins — like the American Gold Eagle — may receive different treatment in some jurisdictions.
Which Should You Choose?
Many experienced investors use both approaches. ETFs for tactical trading and portfolio rebalancing, and physical gold for long-term wealth preservation and crisis insurance. The optimal mix depends on your goals, risk tolerance, and investment timeline.