Many individuals consider investing in gold to be a solid financial option because it is profitable, safe as a long-term store of wealth, and highly liquid. Statistics show that in 2021, the annual share demand of gold for investments was 25%. Many kinds of gold investment opportunities exist, and the paper gold vs physical gold debate has been circulating for some time now. It can be hard to determine which side to hold since they both have their pros and cons.
Paper gold refers to an asset that is a non-physical form of gold and has the same price as the metal on paper. In this article, we’ll break down the different types of paper gold so you can get well acquainted with the concept and make future investment decisions accordingly.
Gold futures correspond to the financial contract signed between an investor and seller in which the investor agrees to purchase a certain amount of gold at a price and date that has been fixed beforehand.
You might be thinking that once you have a gold futures contract under your belt, you’ll instantly gain possession of the physical asset, but that’s not how it works. Instead, this contract provides the buyer with the right to obtain a valuable metal sometime in the future. Gold futures are commonly traded on Comex, a futures and options market for trading materials such as aluminum, gold, copper, and silver.
These are gold commodity funds acting and trading like individual stocks. ETFs are useful to investors because they allow investors to stay updated on the price of gold without having to hold the physical asset.
ETFs are gold shares that are in possession of the fund, with some even holding actual physical gold. In other words, when you redeem your gold ETF, what you receive in return isn’t the physical product but rather the cash equivalent of gold. ETFs are commonly traded using broker-dealers and online brokers.
Gold certificates are not as popular as the two types mentioned above. They are given out by a few banks and companies in the United States and only hold value as collectibles. These certificates enable you to be an owner of physical gold without holding the physical metal. You can show the certificate as proof that you have purchased a specific gold amount that is routinely secured in a vault of the authority that is responsible for issuing gold certificates.
Commodity pools are funds containing an accumulation of capital by many investors, which is then combined and further invested with the help of the commodity pool investment management team. These accounts are a way for investors to keep their assets stored so that they are eligible to make agreements that would otherwise not be possible, leveraging it to increase profits on investment. You can trade commodity pool accounts on gold futures markets.
The decision to invest in paper gold is dependent on an individual’s investment strategies and goals. If you are looking to expand your business portfolio, you can make use of your business profits to purchase paper gold for the betterment of your business dealings. Buying paper gold does involve risks, such as your broker going bankrupt or being unable to live up to your expectations, but the return on this commodity can be worth it. If you’re thinking of investing in paper gold, you can reach out to a financial team that can run you through the market operations and can tell you how to go about the process to avoid potential losses.