Gold has been around forever – used as money, stashed away for security, and even worn as jewellery. But in a world of stocks, crypto, and digital payments, does keeping a stash of gold still make sense?

Many investors gain exposure to gold through financial instruments like exchange-traded funds (ETFs) or gold mining stocks. However, some prefer the tangible allure of owning physical gold in the form of bars, coins, or jewellery. There can be something that feels reassuring about holding a piece of gold in your hands – unlike on-paper investments, it's real, unchangeable, and has intrinsic value.

We're exploring the motivations behind investing in gold, the advantages and challenges of physically owning it, and how it compares to other gold investment options.

Why do people invest in gold?

Gold has played a pivotal role in economies for centuries. It's been used as currency, a hedge against inflation, and a safe-haven asset during times of economic uncertainty.

Investors turn to gold for several reasons:

• A reliable store of value : Unlike paper currencies that can be devalued by inflation or shifting monetary policies, gold has historically maintained its purchasing power.
• A hedge against economic uncertainty : Historically, gold has performed well when markets have been volatile, financial crises have unfolded, or geopolitical tensions have risen. Investors often see it as a financial lifeboat in stormy economic seas.
• Protection against inflation : As central banks print more money, the purchasing power of fiat currencies diminishes. (This refers to government-issued money not backed by a physical commodity like gold, but rather by the trust in the issuing government.) Gold is often seen as a safeguard against inflation since its value typically rises alongside the cost of living.
• The psychological appeal of tangibility : There can be a unique sense of security in holding a physical asset that digital or paper-based investments cannot replicate.
• Diversification : Investors often include gold in their portfolios to spread risk, as gold prices tend to move differently from stocks and bonds.
• Universal acceptance : Gold has been recognised globally as a valuable asset for centuries, making it a widely accepted form of wealth preservation. No matter where you go, gold's value is usually recognised.

How to own gold

Investors have multiple options when it comes to owning gold, each with its own set of benefits and drawbacks.

Physical gold

• Gold bars and coins : Investors often purchase gold bars or bullion coins from reputable dealers. These offer pure gold content and can be stored at home or in secure vaults.
• Jewellery : Some people acquire gold in the form of jewellery, though this method comes with added costs related to craftsmanship and design. Plus, jewellery is subject to wear and tear, which may impact its value over time.
• Collectable coins : Certain collectors buy gold coins that carry additional value beyond their gold content due to their rarity and historical significance.

Gold ETFs and financial instruments

• Gold ETFs : These funds track the price of gold and allow investors to gain exposure without the burden of physical storage. For more info, check out our complete guide to gold ETFs.
• Gold futures and options : More sophisticated investors may trade gold derivatives, which can offer leverage but also come with higher risk.
• Gold-backed digital assets : These are digital tokens tied to the value of physical gold, typically issued by financial institutions or blockchain platforms. They claim to be redeemable for physical gold, but can be risky.

Gold mining stocks and royalty companies

• Gold mining stocks : Investing in gold mining companies provides indirect exposure to gold, but performance is influenced by company operations, management decisions, and external factors.
• Royalty and streaming companies : These firms finance mining operations in exchange for a percentage of future gold production, offering an alternative investing strategy with potentially lower risks compared to traditional mining stocks.

Potential advantages of physically owning gold

No counterparty risk

Unlike paper gold investments, physical gold is not reliant on financial institutions. Gold ETFs and stocks depend on brokerage firms, custodians, or company management, while physical gold is held directly by the investor.

A tangible, relatively indestructible asset

Gold is a physical commodity that cannot be erased, hacked, or digitally seized. This makes it appealing to those who worry about financial system failures or cyber threats.

Collectability and aesthetic appeal

Certain gold coins and jewellery pieces have numismatic (collectable) value, meaning they are prized beyond their gold content due to rarity, historical significance, or craftsmanship.

Potential wealth preservation across generations

Many families pass down physical gold as an inheritance, viewing it as a way to preserve wealth over time without being tied to fluctuating financial markets. Unlike digital investments, gold doesn’t require passwords or accounts – it simply exists, ready to be passed down.

Challenges and risks of owning physical gold

Storage and security concerns

Keeping physical gold safe is a primary challenge. Investors must decide between storing gold at home – where there is a risk of theft – or using a secure vault, which incurs additional costs.

Some opt for home safes, while others prefer bank safety deposit boxes, but all come with their own risks and expenses.

Limited liquidity

Selling physical gold is often more complicated than selling gold ETFs or stocks. Dealers charge premiums when buying and selling, which can reduce overall returns. Plus, selling large amounts of gold may require authentication and additional verification processes.

No passive income

Unlike stocks or bonds, gold does not generate dividends or interest. Investors rely solely on price appreciation for returns.

Market volatility and pricing challenges

The gold market can be unpredictable, and determining the fair value of physical gold can be difficult due to differences in purity, dealer premiums, and local market conditions.

Also, during times of financial stress, physical gold dealers may widen bid-ask spreads (the difference between the buying and selling price of an asset), making it harder to sell at a fair price.

Risk of confiscation or government regulation

Throughout history, some governments have restricted or confiscated private gold holdings. While this is rare, it remains a potential concern for long-term investors.

Comparing physical gold to other gold investments

Each form of gold investment has distinct characteristics, making them suitable for different investor preferences.

Liquidity and accessibility

Gold ETFs and stocks offer easy trading on financial markets, allowing investors to buy or sell instantly.

Physical gold, on the other hand, requires a buyer and often involves negotiation and added costs.

Storage and transaction costs

Owning physical gold entails storage and insurance expenses, while gold ETFs typically have lower fees, and trading gold stocks only involves brokerage commissions.

Gold mining stocks and additional risks

Gold mining stocks provide exposure to the gold sector, but come with company-specific risks. These can include production challenges, political instability, and management decisions.

Some mining companies offer dividends, which physical gold does not.

Who might find physical gold ownership useful?

While physical gold is not for everyone, it can be appealing to certain groups:

• Those who prefer tangible assets : Investors who distrust financial markets or digital assets may find comfort in the security of owning a physical commodity.
• Preppers and crisis investors : Some people believe gold will be valuable in extreme economic or political crises and prefer to keep it in their possession.
• Collectors and enthusiasts : Numismatists and collectors appreciate gold beyond its investment appeal, valuing its historical or artistic significance.
• Long-term investors : Those willing to hold gold for decades may find the lack of liquidity less concerning.
• Those seeking wealth preservation : Families and individuals looking for a long-term store of value across generations may prefer physical gold over digital financial instruments.

Is physical gold right for you?

Physically owning gold can be an attractive investment for those seeking a tangible, counterparty-risk-free asset. However, it comes with challenges such as storage costs, security risks, and liquidity concerns. Compared to gold ETFs and mining stocks, physical gold lacks ease of trading and passive income potential, but it provides direct ownership and personal control.

Ultimately, whether physical gold is a good idea depends on your objectives, risk tolerance , and belief in gold’s role within a diversified portfolio. By understanding the benefits and challenges of physical gold ownership, you can decide if physical gold fits your investing strategy and long-term financial plans.

Happy investing!