Gold Rating

Gold ETF vs. Physical Gold

There are a variety of methods to invest in the yellow metal, like gold, for instance. The most well-known will invest in actual gold or gold-backed securities such as gold ETFs. Gold ETF is an exchange-traded fund that invests in gold. While gold is less costly than platinum or rhodium, the gold trade has left its impact, and it is still regarded as a sign of affluence and sophistication. Investing in gold enables you to diversify your portfolio.

The value of gold has remained intact for a long time, which makes it much more factual for investment. And the volatility might be extant, but in the long run, it adds significance to your investment. However, there are various menaces associated with gold prices, and as a result, gold investment has grown more diverse. Gold ETF will be one of the greatest instances of such diversification.

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What is Physical Gold?

Physical Gold

Buying physical gold is a conventional term for investing in precious metals. Here, you can invest in gold as a bullion and collect this product physically. Most of these physical gold items are traded in jewelry, gold coins, and gold bars. The value of the gold bullion is briefed based on its purity and weight.

Some international producers of gold are regarded as the mints that administer the products. If we consider gold coins and bars, they have a markup value or face value. Apart from their metal melt value, this face value also adds to their rate. Most of the products are made with 75% to 91% pure gold for jewelry. The remainder of the fraction will be metal alloys added to stabilize the constitution of the gold. With gold jewelry, you will pay gold prices for craftsmanship and the cost of the gold.

Gold investors can buy physical gold from gold dealers and brokers who sell it online. There are additional fees associated with owning gold, such as insurance, shipping, markup fees, and so on. And if you are purchasing from a small retailer, they might charge you an additional fee as a proxy. The capital investment is higher for physical gold.

Pros of Gold Bullion

The advantages of investing in physical gold are:

  • This provides a strong hedge against inflation as a precious metal. Physical gold is worth the cost and maintenance in challenging economic and regional instability. They are versatile as the value of physical gold does not change extensively with time.
  • Unlike gold mutual funds, you are in complete charge of your own investment by buying gold. The agreement between the dealer and gold investor is pretty straightforward and predominantly without any concealed charges.
  • With gold-backed investment, the taxes are directly paid, and with this investment, the government or any organization holds less control.

Cons of Gold Bullion

The disadvantages of physical gold investment are:

  • Theft, robbery, and other crimes can take place with gold in hand. And without insurance, you might lose your total investment.
  • Physical gold requires additional fees like an annual storage fee and insurance interest.
  • Physical gold has a chance of being impure and fraudulent with a high initial cost clashing with own personal circumstances.

What is Gold Exchange Traded Fund?

Gold ETF

Physical gold is distinct from gold ETF traded on a stock exchange like usual stocks. The gold investor does not have to deal with the additional chaos of physical gold bullion, such as storage issues, markup fees, or security concerns. Gold ETF is paper assets that function like trust. An example of gold ETFs will be iShares Gold Trust IAU, SPDR Gold Shares, etc.

The ETF paper represents gold that the trust fund holds. You can purchase gold ETFs to get to control the stocks or shares of the trust fund, but you will not be able to hold the physical gold coins or bars. The rate of gold ETFs changes with the pace of actual gold.

You have to pay an expense ratio with an ETF or digital gold. It is an annual fee used to fund the additional costs and management fees of the physical gold maintained by a trust or gold mutual funds. The expense ratio differs according to the amount of investment. The expense ratio can range between 0.50% and 2.00%. Investors have to pay 10 dollars for buying and selling, and added broker fees can be as high as 25 dollars.

Pros of ETFs

Here are the advantages of ETFs:

  • The gold investor will be free from any sort of physical aspect related to the handling of gold, like storage and maintenance.
  • You can easily trade the stocks on stock exchanges, and it also eases the user’s cash-out processes.
  • ETF can be used as an IRA and is easy to hold as the exchange process is pretty simple, thus making them qualified for every aspect.

Cons of ETFs

Here are the disadvantages of ETFs:

  • There will be no direct claim on the physical product or gold with gold ETFs.
  • There’s a possibility of scams and menaces regarding ETFs. If the management company isn’t well established, they might eradicate your entire capital.
  • You have to pay a small management fee, including fractions, which can be a big no-no for some people. Though the management fees are less, it’s still worth mentioning.

Which is preferable, Gold ETF vs. Physical Gold?

Which is Better

There are several parameters related to ETFs and physical gold bullion. But the precious metal that will suit you the most depends entirely on your credit and analysis.

Price Range

The physical form of the gold price is relative to the weight and purity of the gold. If you invest in an individual retirement account, the gold must be IRS approved, 24 karats, and 99.9% pure gold. The mintage year and face value will also determine the age of coins and bars. Pre-1933 coins are viewed as collectibles by gold investors. They have a melt value and a face value, along with their rarity and condition. So it is much more expensive. In this case, the dealers decide the prices with a competitive approach.

The ETFs are traded like stocks on an exchange. The price of the ETFs changes all day long with the buying and selling of the items. It is more expensive to acquire an ETF when more buyers than sellers. Conversely, when there is more selling, the price of an ETF lowers. However, unlike actual gold, precious metals prices are transparent and regarded as an international benchmark. There are no differences in price from one merchant to the next since the pricing is accessible throughout.

Investment Process

Most gold investments are of a standard set. The gold coins are usually weighted at one troy ounce, thus making them a standard. But the investment rate changes along with the markup and mintage value.

ETFs are traded in units. One unit of ETF is equal to one gram of gold. So, unlike physical gold, you will be able to invest in a fraction of physical gold with the largest gold ETFs.


A long-term capital gain (LTCG) on physical gold will be taxed at 28%. If the gold is held for more than a year, it can be taxed at a 15% to 20% rate. If there is again from the physical gold and it has been amassed for three years, then they will be levied with the tax slab rate. There is also a wealth tax on income of more than 3 million.

With short-term gold ETFs, the taxes will be counted as regular income. But if the ETF is collected for more than a year, there will be 28% capital gains. So there are no advantages to capital gain taxes. But there is no wealth tax for minimum investment.  However, there are varying rules when gold is held in an IRA account.


Investing in physical gold means you might have to add a markup value to it. And if there is jewelry, you might have to pay an extra 30% in addition to its melt value.

The expanse ratio will be 1% of a gold ETF, and brokerage charges will be less than 0.5%. iShares Gold Trust will charge you 0.25% annual fees. iShares Gold Trust also offers a 0.00% yield and 0.07% fees with a premium subscription pack.


You can buy gold from a certified dealer or a bank, where they trade the gold according to a set of standards. Even online retailers are available.

Gold ETFs are traded on a stock exchange, thus making it much easier for trade.

Buyback Value

The return value of physical gold will be the current market value. But the manufacturing prices and buying prices will be subtracted.

For gold ETF, the actual return value will be lower than the current gold unit price or the price of 1 gram of gold. The brokerage bill and the buying expense will be deducted from the actual value. This is the central forte regarding digital gold vs. physical gold.

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Should I Buy Physical Gold or ETF?

You get to buy rare and collectible coins with physical gold and have a subjective mark on them. So, we suggest diversifying the investments if you want the bottom line regarding gold ETF vs. physical gold. You should invest 10% to 15% of your total investment in gold. So split up that amount between physical gold and gold ETFs. This will provide more controlled risk management, and you will have more possibilities to explore.


Both physical gold ownership and gold ETF have their own set of pros and cons. Physical gold is universal and is accepted in a wide range of countries. Paper gold is safer and has a standard and transparent bargain internally. The gold ETFs are treated like stocks, where you get a fraction of their value presently, and the capital you’ll be investing is a lesser amount.

Arthur Karter


Hi, I’m Arthur, and nobody wants to wake up in their 50s like me that they are in serious debt with minimal assets. This wake-up call forced me to reevaluate everything. After going through the school of Hard Knocks, I’m ready to help you by sharing the best retirement choices and how they differ from all the same-old, same-old options that financial advisors sell. These alternatives will help you build and protect your wealth.

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