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Home >> Why Buy Physical Gold Versus Gold ETFs?

Author: Gold Why Webmaster
Date: September, 2010
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1985 Gold Chinese Panda Coin  
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Hey Everyone! It's an exciting time! The price of gold is hitting new highs daily! As someone who has been buying gold since the $500 per ounce range, I'm thrilled to see my investment rise in value! Is this rally over? I really don't think so! Now, as mentioned in my 2010 gold price prediction, I do see gold staying in the current range for a while. Why? The price has risen quickly and the market needs to digest the move before the next big leg up to the $1,500 per ounce level. One thing is very clear to me, however: The long term price trend of gold is up, way up!

As the price of gold rises, I have been getting a lot of questions about buying physical gold bullion coins and bars versus gold ETFs (gold exchange traded funds) such as GLD. Today, I'd like to address that question because it's a very good one. It's a question I have some very strong opinions about!

Gold ETFs are More Accessible Than Physical Gold (Gold ETF Pro)

As the price of gold rises, it's becoming increasingly difficult to purchase gold coins for smaller investors. Why? First and foremost, the price of gold has skyrocketed. The price of a one ounce gold round is quite expensive, currently in the $1,300 range (due to dealer markup). Even fractional gold coins such as the tenth ounce panda are expensive due to dealer markup (currently in the $150-$180 range). What is a smaller investor to do? Well, one option is investing in shares of gold ETFs (or exchange traded funds). The most popular gold ETF out there is GLD (SPDR Gold Trust). The current price per share of the GLD ETF is only $124 per share. If you're a small investor like myself, you can buy one share of the GLD ETF for only $124 plus $7 commission if you use a discount broker like Scottrade! How cool is that? Another benefit: Since GLD is a huge $48 billion dollar fund, the markup between the spot price of gold and the price per share is low compared to dealer markup on physical gold. In other words, GLD can take thinner margins due to scale.

What Happens In An Emergency? (Gold Exchanged Traded Fund Con)

Most of us buying gold coins are practical folks. We're hoping for the best but also planning for the worst. What if disaster strikes? Will it be easy to get your physical gold out of GLD?I don't really think so! GLD is unallocated paper that says they are storing gold on your behalf. However, I don't think there's a easy mechanism to ever redeem that gold. Moreover, GLD is an unallocated fund meaning your gold is mixed in there with everyone else's. There's no spot in the vault that's reserved just for your gold (as would be the case with allocated gold storage). It's this very reason that I'm a huge fan of physical gold bullion coins and recommend always weighting more of your gold portfolio in physical gold bullion than gold exchange traded funds.

On the topic of emergencies, I will say however that it's great to diversify! The problem with an emergency is you can prepare but you never know what will happen. The best way to prepare, in my opinion, is to own gold and silver in multiple different ways. The GLD exchange traded fund offers yet another way to diversify and own gold. You may want to check out my article about gold confiscation to learn more about exchange traded funds as a method of diversification.

Physical Gold Coins Are Small and Portable (Physical Gold Coins Pro)

Gold coins and small gold bars such as Johnson Matthey Gold Bars offer the ultimate leverage! A very small amount of gold contains tremendous wealth. In fact, you can store a lifetime's worth of wealth in your pocket with gold. It's very easy to store gold in a safe deposit box. Moreover, you can choose to hide gold (just a little) around the house. Physical gold bullion is small and portable enough to make this easy. The best part of all of this? You can easily take your gold with you if emergency strikes. If not, it will at the very least be super easy to pass your gold down from generation to generation.

Exchange Traded Funds Rock, In The Case of Silver (Silver ETF Pro)

As you can see, I'm a big fan of physical gold coins. Even though the markup exists, I always recommend starting out with physical gold and keeping it as a large position within your gold portfolio. Nonetheless, gold ETFs do have their place and can be a great compliment to any gold portfolio. In terms of percentages, I would recommend having 75 percent (or more) of your gold in physical bullion and about 25 percent (or less) in ETFs.

However, let's shift gears a bit and look at silver. I'm also a huge fan of silver bullion coins and bars. I love silver art bars and just did a silver art bar video. I also love tubes of silver eagles. However, one thing becomes very clear very fast when you build out your silver bullion collection: It takes up a lot of space! For this very reason, silver exchange traded funds (such as SLV, iShares Silver Trust) are an excellent choice! It's not so easy to hide silver. It's not so easy to put silver in your safe deposit box. Owning some shares of SLV, however, takes up no space at all. For this reason, I tend to recommend ETFs a lot more in the case of silver.

While we're on the topic, I want to draw your attention to two more articles I wrote a while back about gold mining company stocks. If you're thinking of buying GLD and SLV, you're probably also thinking about gold stocks. My first article talks about why you should not buy gold stocks. The second article talks about why you should buy gold stocks. I hope you find these helpful! So, you may be wondering where to buy gold coins? There are many great options but I must say I have been having a lot of success with GovMint.

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