Physical Gold vs. GLD: Five Questions to Find Your Perfect Goldmate

Gold investing has surged in popularity in recent years, as the debut of financial instruments like the SPDR Gold Trust (GLD) has made it possible for any investors to quickly add exposure to this precious metal in their portfolio. But with the introduction of this physically-backed asset has come a number of questions as to whether or not long-term investors should actually use it. Below, we outline five questions that every investor should ask themselves when making the decision between GLD (or other gold securities) and physically investing in the metal [for more gold news and analysis subscribe to our free newsletter].

  1. Do You Trust GLD? - We are fairly confident that the blogosphere and the rest of the internet stands pat on this issue; everyone loves to hate GLD. The most common complaint is that the fund does not actually hold the amount of gold it claims to, or that it doesn’t hold any gold at all. Of course, the fund has never actually been proven a fraud, but there are a number of nuances of GLD that raise suspicions for investors. That being said, the fund has over $65 billion in total assets and trades more than seven million times each day so clearly there is a large market of investors who feel comfortable with the ETF. You will have to decide for yourself if you think GLD is a sham, but it is definitely the first question that you need to answer in this everlasting debate [see also Why No Investor Should Own GLD].
  2. Why Are You Buying Gold? - This one seems a bit asinine, but it can help you get to the bottom of this issue. Physical gold and GLD have very different risks and rewards associated with each, and both options come with their fair share of pros and cons. If you are buying gold because you don’t trust stock markets or the global economy, you will be much better served by physically holding the metal itself. But if you are simply adding exposure to the metal for its diversification benefits and strong historical track record, GLD will be a more liquid and hassle-free option for you.
  3. Do You Have the Capital for Phyiscal? - One of the biggest advantages of using an ETF over buying actual gold is how much cheaper it is to utilize a financial product. One measly ounce of gold costs you upwards of $1,600; and that amount of money will get you roughly 10 shares of GLD. You will have to decide if you even have enough money to invest in a fair amount of physical gold, and if it will be worth buying whatever amount you can afford over using GLD for exposure.
  4. Can You Afford to Store? - Another drawback to physical investing is the physical storage of the metal. Investors need to carefully find a place to store their gold (which can be a headache on its own) and that can often have high costs associated with it. And not all of those costs will be financial. For those who choose to bury their gold (as many do), there are a number of things to keep up with, such as activity surrounding the burial site, keeping the location secure, and monitoring the bullion. Storing physical gold will hit not only your wallet, but your free time as well. Those not willing or not able to deal with maintaining bullion will be much better served by GLD.
  5. Can You Sell Your Physical? - Selling GLD will be one of the most painless experiences in your investing life. There is such high demand for the product, that you can sell your shares in seconds using anything that can muster up an internet connection. Unloading physical bullion is a different story. While there is always demand for physical gold, it will be more difficult to sell your gold to a source that will give you a fair price, as many places will buy for below the market price. It is also important to note that the more gold you have, the harder of a time you will have selling it. Flipping a few coins here and there will probably be no big deal, but getting rid of bars that are worth tens of thousands is a different story. Make sure you have thoroughly researched how you will be getting rid of your physical holdings before you decide between these two options [see also APMEX vs. KitCo vs. Goldline: Which Online Gold & Silver Dealer Is Right for You?].

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Disclosure: No positions at time of writing.

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