Gold ETFs or Gold Coins?

When deciding to invest money in gold, one often thinks that which would be the best investment: having physical gold (gold coins) or, backing up the investment with gold (gold ETFs)? In the first option, you actually possess the gold. In the second option, you invest your money in gold but, cannot take its delivery.

Both the above stated options have their own advantages and disadvantages. In the case of gold coins, you have the gold in your hand; either deposited in a bank vault or kept in a safe at home. On the other hand, the gold ETFs are shares which have been backed up by gold. They are only a paper certificate to signify your gold holdings. You never get actual gold when you trade the gold ETFs; the payment is always done in terms of cash.

 

The cost involved in the procedures for buying and selling of the gold ETFs is lesser as compared to that of the gold bullion coins. The gold ETFs are subject to different taxes (such as, income tax, capital gains tax etc.), since they are taken as an investment. But there are no such taxes associated with buying and selling of the gold coins as they are treated more as international currency than an investment tool. However in some US states, taxes may be applicable when the gold coins are being sold.

Buying gold coins needs proper research to be done about the available dealers, the prices, the different gold coins in the market and finally making the best deal. Doing all this consumes a lot of time and effort. This time and energy is being saved by the notion of Gold ETFs. They are a relatively new concept through which the people, who would think a lot before investing, can invest their money in gold for a short period of time. They are preferred over the gold coins due to their ease of transaction, no requirement of storage and less overhead charges are incurred when buying them. This doesn’t mean that gold ETFs will take over the market of gold coins. People still prefer owning physical gold. It’s just that the gold ETFs provide an alternative and can be considered as a mode of diversifying the investment.

For the gold ETFs there is a requirement of a demat account, whose cost is more when compared to that of the fixed locker charges for storing physical gold, on a long term basis. It is because storage charges are the same for physical gold, but for the gold ETFs they are approximately 1% of the total investment. They tend to increase with time as the amount invested increases. So if you wish to invest your money for a long period of time, then investing in physical gold or, a gold coin is a good choice. On the contrary, if you want to make short term gains then you may go in for the gold ETFs.

Deciding between the gold ETFs and the gold coins varies according to every person’s needs. It is better to consult a financial advisor and determine one’s needs carefully beforehand if planning to go for a serious investment in either of them.

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