Physical or digital gold: which do I choose?
Given the exceptional situation we find ourselves in, more and more investors are trying to buy gold to protect their savings from instability and inflation. But does this mean that we end up keeping gold bars at home? Are there alternatives to physical gold? 11Onze broker Amadeu Vilaginés gives us an overview.
Historically, gold has played a very important role in the economies of many nations. Although it is no longer a primary form of currency, buying gold and other precious metals remains a sound long-term investment. You may have heard of people buying gold bars and hiding them under the bed or in a safe. But beyond this cinematic image, is it worth keeping gold at home?
“These fears should not be an impediment, as there are now many companies that store and guard the gold of private individuals,” Vilaginés says. Their vaults, which are much more modern and secure than the safes we may have at home, ensure better protection. “We can also buy gold coins instead of bars, which are easier to hide. And above all, it is important not to keep all the gold in one place,” Agent 11Onze says.
Similarities and differences
If you don’t feel like buying physical gold, there are alternatives. “Physical gold is tangible, while digital gold is a financial asset that reflects the price of gold,” Vilaginés sums up. Normally, he says, it is an ETF, i.e. an exchange-traded fund: if the price of gold goes up, then the value of the ETF goes up, and vice versa.
“Essentially, it’s the same for physical gold as it is for digital gold. In other words, I can buy a bar of gold in 2020 and, if it has risen in price in 2022, I can sell it and make a capital gain. Conversely, I could have bought a stake in an ETF linked to the price of gold in 2020 and then sold it in 2022 and made a profit,” he argues.
So what are the differences between physical and digital gold? “For a start, ownership. When you buy physical gold, you own the metal, whereas when you invest in an ETF what you have is a right or an option,” he says. In addition, the value of gold is intrinsic and cannot suspend payments, whereas financial assets can.
There is also the problem of storage and liquidity. “Digital gold doesn’t need any storage and, once we decide to sell it, it’s as easy as pressing a button. The downside of physical gold is that it can present more liquidity difficulties than the financial asset, since you have to find a buyer for your bullion and, in addition, we will have to take into account the storage costs,” Vilaginés explains. Watch the video below to find out all about physical and digital gold.
If you liked this article, we recommend you read:
The guide to buying gold1 min read
At 11Onze we want to help you protect your savings in an easy
Should you invest in gold?1 min read
Persistent economic uncertainty and unrelenting inflation have