Physical gold is simply what it says. It is physical, which means you can hold it in your hands. This can be subdivided further into the following :-
This constitutes all your jewellery like rings, necklaces. This is a most popular way with the older generations. The good thing about this type of investment is that it has a utility function in the meantime. Another good thing about this type of investment which is not talked about much is that of anonymity. You just go into a jewellery shop and purchase your jewellery and there usually is no record.
However, what is not very good about this form of investment, is the huge discount being applied. You see, when you buy gold jewellery, the jeweller usually charges a fee called workmanship, which can be as high as 20%. Similarly, when you want to sell your jewellery, they will also apply a discount for your jewellery.
Gold bullion is normally what is recommended for investors interested in investing in physical gold. By defination,
Bullion refers to physical gold and silver of high purity that is often kept in the form of bars, ingots, or coins. Bullion can sometimes be considered legal tender, and is often held as reserves by central banks or held by institutional investors.
By Investopedia, 3 Nov 2019
While jewellery investment suffices for those who wanted something that can keep its value whilst enjoying using the jewellery at the same time, bullion is the way to invest in physical gold for serious investors who are primarily looking to gains.
What is great about bullion is in times of extreme crisis when the financial system breaks down in your country, whether due to war or whatever, you can instantly get access to your gold.
You will find that it is also this characteristic that many has cited as its disadvantages. This is namely, storage of it. By storing in your own home, means that it is open to loss through theft and robbery. Storing it in safe deposit boxes incurs a charge. What is more, if there is a financial collapse in your country, you also cannot take out the gold from the safe deposit box as the bank may be closed.
2. Paper Gold
This refers to investments which you owned but do not hold physically. It is basically an IOU that you have purchased from a third party, which is usually a bank or a fund. This can be your gold certificates, which is just like fixed deposits but denominated in gold. Alternatively, this can be your gold etfs. How etfs works is investor will put their money in a fund manager who will then total up the amount and goes out to buy the physical gold to be stored in a secured facility. In return, the fund managers makes a management fee which covers administration cost, storage and insurance costs. Investors would then be able to buy and sell their etfs units on a exchange.
The advantages of investing in this way is that it does away with having to ensure its safe keeping. In case of etfs, it also allows you to buy smaller quantities at one-tenth of one ounce.
Disadvantages is that you have to pay management fees to the fund. Another disadvantage is that at times, may be difficult to execute the trade. In the case of extreme financial markets, you may not get access to it although this is a very unlikely occurrence.
3. Digital Gold
This has certain similarities to both physical and paper gold. It allows customer to buy even tiny amounts of it that is stored at secured vaults in the platform that the customers bought from. You can then slowly accumulate the physical gold in small amounts. This is about the only advantage that I see for this way to invest.
The disadvantages on the other hand is numerous. I have listed some below :-
a. This is all done online through the platforms, therefore due dilligence have to be made to ensure the financial stability and strength.
b. Certain platforms allows you only to keep it in their vaults for 5 years, after which you have to either take delivery of the gold to be minted into coins or sell them back at a loss.
c. If you choose to take delivery of the gold coins, there are cost associated with it and you can’t properly determine your profit as you have to factor in this costs.