What is Paper Gold?

Gold and other precious metals have a striking appeal. You can see them, touch them, and while their worth fluctuates day by day, they’ve been valuable assets for thousands of years.

But a more recent form of precious metals making their way into the economic sphere is paper gold and precious metals—called ETFs. ETFs (exchange traded funds) or ETPs (exchange traded products) were first used in the 1990s by Canada and were later adopted in 1993 by the United States, and were primarily used by institutional investors to carry out complicated trading strategies.

In terms of gold, silver, and other precious metals, ETFs are a paper representative of how much quantity of the substance you’re buying. But are paper metals as “good as gold,” or are there more risks associated with these printed substitutes? Let’s find out.

Paper Gold and Paper Precious Metals: Risky Business?

When you have physical gold or precious metals in your safe, security deposit box, or vault, it’s a physical asset with real weight and volume. But we use debit cards and watch as digital money streams through our bank accounts each day—are paper gold or precious metals really any different?

Yes indeed.

When you own ETF shares of GLD or SLV, you don’t own real gold or silver. The funds have a disperse share based on physical silver and gold stores, but no investor has access to the stores. What’s more is that the value of the contracts is estimated to surpass the stored quantities—by 150 times the physical amount.

Paper gold and paper silver intermediaries can dissolve instantaneously—and your money with them. Terms and agreements are often riddled with intricate legal clauses that give the dealers a way out in case of implosion. Take the story of Jon Corzine and MF Global. Investors bought futures and options and in 2011, MF Global imploded. The investors are still out millions.

Additionally, it’s been noted that it’s increasingly difficult to draw out funds—banks and the language in their contracts are adept at including varying obstacles that’ll keep investors’ assets in the bank. This is particularly troubling, as investors may have issues liquidating in times of economic downfall.

Benefits of Physical Gold and Physical Precious Metals

Holding real gold, silver, palladium, or other precious metals is the safest way to enjoy the benefits of investments in precious metals. Tangible assets cannot be called into question, and gold and silver bullion provide a security blanket during times of economic faltering or during extreme situations (hyperinflation, power outages, etc.).

Precious metals—especially gold—are also extremely portable. With gold at over $1,800 AUD per troy ounce, it’s easy to move gold or precious metals from place to place.

Most importantly, holding physical gold and precious metals means you’ll have little to no counterparty risk. ETF investments depend on the fund’s structure, reputation, regulatory compliance, and much more. If you’re holding stores of gold, silver, or other precious metals, all you have to worry about is where you’re keeping your investments.

Curious about investing in physical gold or precious metals? Reach out to us at Jaggards—we’re the numismatic experts.