Two Paths to Gold Exposure
Investors seeking gold exposure can choose between physical gold bars and gold ETFs. Each approach has distinct characteristics worth understanding for different investment objectives.
Physical 10 oz Gold Bars: True Ownership
When you buy a 10 oz gold bar, you own the actual metal. It's yours, stored where you choose, accessible without intermediaries.
Advantages:
- No counterparty risk—your gold doesn't depend on any institution
- Tangible asset you can hold, store, transport
- Privacy potential in transactions
- Accessible even if financial systems fail
- 5,000+ year track record as money
Disadvantages:
- Storage responsibility and costs
- Higher transaction costs (premiums, spreads)
- Less liquid for frequent trading
- Authentication required when selling
- Physical security risk
Gold ETFs: Paper Convenience
Gold ETFs (GLD, IAU, SGOL) hold physical gold and issue shares representing fractional ownership. You buy and sell shares like stocks.
Advantages:
- Easy trading during market hours
- Low transaction costs (brokerage fees)
- No storage hassle—fund handles everything
- Precise position sizing to the dollar
- Seamless portfolio integration
Disadvantages:
- Counterparty risk—you trust fund sponsor and custodian
- Annual expense ratios (0.25-0.40%)
- No physical access to underlying gold
- Taxed as collectible (28% max federal rate)
- System-dependent—requires functioning markets
Cost Comparison: 10 oz Bar vs ETF
For $100,000 gold position held 10 years:
Physical 10 oz Bars (5 bars):
- Purchase premium: ~$3,000 (3% on $100K)
- Storage: ~$3,000-5,000 (vault at 0.3-0.5%/year × 10 years)
- Sale spread: ~$1,500 (1.5% below spot)
- Total 10-year cost: ~$7,500-9,500
Gold ETF (GLD at 0.40% expense ratio):
- Purchase: Market price, ~$10 commission
- Annual fees: ~$400/year × 10 = $4,000
- Sale: Market price, ~$10 commission
- Total 10-year cost: ~$4,020
ETFs are cheaper for smaller positions and shorter holding periods. Physical gold's costs become more competitive for larger, longer-term positions.
Risk Comparison
Physical Gold Risks:
- Theft or loss
- Damage during storage
- Authentication challenges
- Dealer fraud (rare with established dealers)
ETF Risks:
- Custodian failure or fraud
- Trading halts during market stress
- Tracking error from spot price
- Regulatory changes
- Forced liquidation scenarios
The fundamental difference: Physical gold risks are within your control; ETF risks depend on institutions functioning properly.
Liquidity Comparison
Physical 10 oz Bars:
- Sell through dealers (1-3 day process)
- May require authentication for larger sales
- Spreads widen during market stress
- Not suitable for frequent trading
ETFs:
- Sell instantly during market hours
- No authentication needed
- Tight spreads in normal conditions
- Excellent for tactical positions
Tax Treatment
Both are taxed as collectibles when held over one year:
- Maximum 28% federal long-term capital gains rate
- Short-term gains taxed as ordinary income
- State taxes vary
ETFs may generate taxable events through fund operations (less common with physically-backed funds).
The Hybrid Approach
Many sophisticated investors use both:
Core position (60-80% of gold allocation): Physical 10 oz bars
- True ownership for crisis insurance
- Long-term inflation hedge
- No ongoing fees eating into position
Tactical allocation (20-40%): Gold ETFs
- Rebalancing flexibility
- Quick position adjustments
- Cash management tool
This approach captures physical gold's security while maintaining portfolio management flexibility.
Decision Framework
Choose Physical 10 oz Bars If:
- Primary goal is wealth preservation/crisis insurance
- Holding period is 5+ years
- Position size is $100,000+
- You have secure storage arranged
- Counterparty risk concerns are significant
Choose ETFs If:
- Primary goal is portfolio diversification
- You trade gold tactically
- Position size is under $50,000
- Convenience is priority
- You trust institutional systems
Use Both If:
- Significant gold allocation ($100K+)
- Want core security + tactical flexibility
- Different time horizons for different portions
- Seeking to optimize costs across holdings
For more on physical gold ownership, explore 10 oz gold bars as an investment option.