How to invest in gold – physical or paper gold?
Gold has been a store of value and a medium of exchange for thousands of years. In today’s uncertain times, it attracts investors especially because the value of gold does not depend as directly on the economic performance of individual companies or countries as the value of stocks or bonds.
But – what is the best way to invest in gold? Should you invest in physical gold or so-called "paper gold"?
In this article, we will compare the differences between physical gold and paper gold, such as ETFs and mutual funds. You will get a clear picture of how to invest in gold and which option suits you best.
Why is investing in gold beneficial?
Gold is considered a kind of safe haven because its value tends to remain stable or even increase when there is uncertainty in the economy or stock markets. The main reasons for investing in gold are:
Store of value: Gold is a finite natural resource, and it cannot be "printed" like paper money.
Inflation protection: The price of gold often rises when the purchasing power of money decreases.
Portfolio diversification: Gold often behaves differently than stocks or real estate, which helps to mitigate risk.
Liquidity: Gold is a globally traded asset that can be sold quickly.
Physical gold – coins and bars
How to invest in physical gold?
You can buy physical gold in the form of coins or bars directly from the Jalonom webstore. The purchasing process is simple: you pay the price of the gold, receive the gold product, and can store it yourself or use a professional storage service, such as the safety deposit boxes we offer.
How does physical gold yield?
Physical gold does not pay interest or dividends; instead, the return comes from the increase in the price of gold over time. When the price of gold rises, you can sell it for a profit. This makes physical gold particularly attractive as a long-term investment.
The biggest advantages of physical gold are full ownership and independence. The investor owns the gold concretely without counterparty risk and can store it entirely under their control. Physical gold is not tied to stock market hours, so it can be sold or transferred at any time. Additionally, a unique feature of physical gold is that it can be used as a medium of exchange even in crisis situations. This provides security when other investments are difficult to convert to cash or are uncertain in value.
Storing physical gold is easy today, as gold takes up little space and can be stored securely in safety deposit boxes. Gold can also be safely stored at home, provided basic precautions are taken.
When gold needs to be converted to cash, dealers buy it back quickly, so funds are typically available within a few days.
Paper gold – ETFs and mutual funds
Paper gold refers to investment products whose value tracks the price of gold. The most well-known are exchange-traded funds (ETFs) and specialized mutual funds.
How to invest in paper gold?
You can buy an ETF or mutual fund through the stock market or a bank, just like stocks. You only need a securities account with your chosen provider.
How does paper gold yield?
The return on paper gold is based on the increase in the price of gold, but you never actually receive physical gold in your hands. In practice, you own a security that tracks the price of gold.
Investors in paper gold do not have to worry about storing or insuring physical gold, as physical gold is never actually in the investor's hands. However, this leads to a lack of ownership, meaning paper gold cannot be used as a medium of exchange in crisis situations. At the same time, the investor is dependent on the stability of the fund, so it is advisable to buy paper gold from a well-regulated manager. When investing in paper gold, it is also important to consider the management fees of the fund on a monthly and annual basis.
Investors who invest in paper gold often want to react quickly to market changes, buying or selling gold on short notice while constantly monitoring price fluctuations.
Physical gold or paper gold – Which to choose?
If your goal is long-term value preservation and safeguarding wealth across generations, physical gold is clearly the best choice. It offers tangible ownership and freedom regardless of the financial system or market fluctuations.
Paper gold may be more suitable for investors who want to take advantage of short-term price fluctuations in gold and trade quickly on the stock market.
Many, however, choose a combination of the two. Physical gold acts as a safeguard and store of value, while paper gold provides flexibility and the ability to respond to market conditions.
Kultaan sijoittaminen kannattaa, kun haluat suojata varallisuuttasi inflaatiolta ja markkinaheilahteluilta. Mikäli tavoitteesi on pitkän aikavälin vaurauden säilyttäminen ja riippumattomuus rahoitusjärjestelmästä, fyysinen kulta – kolikot ja harkot – ovat erinomainen valinta.
