“Paper” v Physical Gold 101
Part of the allure of owning gold is the absence of counterparty risk. You hold it, you own it. There have been many questions raised about the real physical holdings of gold backing up paper ETF claims. India’s largest gold ETF is managed by Goldman Sachs who recently revealed they lend a portion of this gold (as India looks to meet gold demand domestically given import restrictions). In a note to investors they openly state “A situation could arise where the issuer is unable to return the principal physical gold….
Such inability to return physical gold could arise on account of liquidity problems or general financial health of the issuer,”. There is endless speculation that the US has done exactly the same with its reserves. So when everyone wants their gold, would you rather have a piece of paper saying you own some, or have the real stuff locked in your safe place? Buying it couldn’t be easier either!