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Physical Gold vs Paper Gold and the Impact of the Blockchain

As we’ve seen throughout different eras, gold has historically acted as an effective hedge against inflation, currency devaluation and broader uncertainty. In this light, it is no surprise why the yellow metal is doing so well at the moment.

If you’re thinking of buying gold, there are many ways to do so, from exchange traded funds (ETFs) and futures (otherwise known as paper gold), to investing in a gold mining company’s stocks and shares, or actually buying physical gold bullion. In this article, we explore your options and how blockchain can add an extra layer of security and confidence to gold purchases.

Could it be time to buy gold?

The price of gold has been subject to various ups and downs in April, driven in part by inflation reports and the war in Ukraine. At the time of writing on 14th April the gold price sat at £1,503 per troy ounce. But the price in April has been as low as £1,463 and as high as £1,518.

Price fluctuations like these are worth keeping an eye on when you’re considering buying gold. Just a few days can make a big difference in your purchase price. Save our gold price chart to your bookmarks and have a look each morning to see how things are developing; staying informed on a daily basis can help you to understand the market you’re buying into.

Once you’re happy that you have an eye on the current trends, it’s time to decide how you want to buy gold. The big decision to make is whether to buy physical gold or paper gold. Let’s look at the options.

What is paper gold?

Paper gold is a way of describing a derivative of the gold market. It could be an ETF or gold futures, or gold futures wrapped up in an ETF.

An ETF is a fund that is usually built to focus on a specific segment of the financial markets such as stocks and shares or commodities. Obviously when we’re talking about paper gold, we’re talking about ETFs that track gold as a commodity.

If the fund has exposure to gold, it will be in the forms of shares in gold held by banks, or most commonly, gold futures. A gold future is a promise to buy or sell gold at a specific price on a specific date.

What’s the difference between physical gold and paper gold?

The biggest difference between paper gold and physical gold, most often cited by proponents of the latter, is that physical gold has intrinsic value. Physical gold is in demand from manufacturers of electronics and jewellery, not just investors.

This is in contrast to paper gold, particularly futures, which are driven by the whims of market speculation.

The other, more obvious difference is the fact that when you buy physical gold, there is a tangible asset in your possession. It’s much more straightforward to realise its value than that of paper gold where you are only in possession of a certificate or share that has not yet been ‘cashed in’ for actual gold.

Physical gold vs paper gold

Physical gold Paper gold
Physical gold has intrinsic value as a scarce commodity used in manufacturing and luxury products around the world. Paper gold has no intrinsic value; it’s only worth what the markets say it’s worth at any point in time.
When you buy physical gold, your investment is tangible and easy to verify. When you buy paper gold, you are at the mercy of a third-party to verify and take care of your investment. The ratio of traded gold to physical gold is in the region of 200 to 1, which tells you how much risk there is in the paper gold markets. What would happen if everyone wanted to realise their paper gold investment at the same time?
With physical gold, you are responsible for arranging secure storage, whether that’s in a safe under your control or in a high security storage location, such as that offered by The Gold Bullion Co. With paper gold there is no need to worry about storage.

Making smart choices when you buy physical gold

Whichever route you take to buy gold, it pays to research the market. If you’re buying physical gold, look for a seller with a strong track record and experience with good reviews from other customers.

You want to know that what they are selling is as described, particularly when it comes to the purity of the metal in question. Unfortunately, there are still some dubious characters operating on sites like eBay who will try to pass off gold-plated items as genuine bullion. As with anything in life, the best way to avoid this is to ask yourself ‘is this price too good to be true?’.

More recently, blockchain technology is creating new standards in the industry to validate the origins of each individual piece of bullion. A blockchain is a digital decentralised public ledger, which stores information in such a manner that it is impossible to forge or alter.

While the technology first sprang up in the world of cryptocurrencies, its range of uses is rapidly expanding. One of the most interesting new applications is the validity of supply chains.

The gold industry is now getting involved to use blockchain technology to improve the process and safety of purchasing gold by recording every step in a gold bar’s life-cycle from mine to vault.

This will ensure that gold bars with a false LBMA stamp do not end up in top bullion vaults. In other words, blockchain can guarantee that the gold you purchase originates from a legitimate and ethical source.

Buy gold bullion with the Gold Bullion Co

Are you interested in transferring your cash assets into physical gold? At Gold Bullion UK, we have a range of gold coins and bullion bars. So, whether you’re a seasoned investor, or starting out on your journey, we can help you choose from a selection of weights and styles.

Some of our most popular products include:

Coins Bars
Gold Britannia coins 1 gram gold bars
Gold Sovereign coins 1 ounce gold bars
Silver Britannia coins 1 kilo silver bars

If you have any queries relating to the process of investing in gold, feel free to contact us today, and we’ll be happy to help.


Article Last Updated: Thursday, April 14, 2022