Stock ticker over large gold bars

Physical vs Digital Gold: Understand the Difference and What Works Better for You

Lately, you may have heard the term “digital gold” and wondered what it’s all about. What does digital gold mean? How does digital gold compare to physical gold? Which one fits your investment goals and preferences better?

Let’s take a look at this new investment product and how it compares to gold bullion, as well as other common types of gold investments.

What Is Vaulted Gold?

Before we get into digital gold, first it helps to understand what the term “vaulted gold” means. Vaulted gold is bullion that never leaves the vault. Individuals, funds, and organizations can invest in it, but it stays right where it is. In Canada, that usually means it stays in the possession of the Royal Canadian Mint or one of the major banks, all of which store bullion.

Investors can buy and own vaulted gold without ever taking possession of it. It remains stored in the vault, secured and insured, without you ever holding it – though there may be fees related to storage, security, and insurance.

There are two types of vaulted gold: allocated and non-allocated. Allocated gold comes in the form of a singular gold product (such as a 1 oz. bar) that is stored separately under your name and never mixed with anyone else’s. The mint or bank can point to a bar and say who it belongs to.

Non-allocated gold is mixed together. The mint or bank knows that you own 1 oz. of gold, but treats all of the products interchangeably and stores them together.

What Is Digital Gold?

Digital gold is a new, convenient way of owning vaulted gold. Instead of having to buy physical gold bars, you can go online, enter your payment information, and buy a sum of vaulted gold. Ownership is “digital” in that you can manage it online, but you do have ownership of real gold bullion; it’s just stored in a vault somewhere far away.

Some digital gold companies are increasingly turning to blockchain technology to track ownership of vaulted gold and provide an extra layer of security. Blockchain technology can create a ledger system that tracks ownership publicly and allows an open marketplace of digital gold. However, some projects also appear to be integrating cryptocurrency tokens, which should be a concern for anyone who wants to make sure they get real bullion.

How to Buy Digital Gold vs Physical Gold

If you are looking for a trusted source for bullion that you can hold in your hands and choose your own storage location for, you need a bullion dealer. With Global Bullion Suppliers, you can buy the best-selling gold coins and bars, as well as silver bullion, in-person or online. Bullion dealers provide the right combination of reliability and low premiums. We are an authorized dealer with the Royal Canadian Mint and can offer lower prices than the banks.

Buyers of digital gold have a much newer landscape in front of them. Digital gold is generally more common in other parts of the world and it hasn’t quite made the same inroads in Canada. In the UK, buyers can go directly to the Royal Mint to buy digital gold.

The Royal Canadian Mint does not yet provide those services directly, but Canadian buyers can use a number of online companies that sell digital gold vaulted with the Royal Canadian Mint. Some use blockchain technology to track ownership.

Some digital companies allow you to convert physical gold to digital gold or vice versa. However, there may be costs related to shipping, insurance, and manufacturing the gold product.

Arrow pointing up in front of gold bars and coins

Benefits of Buying Digital Gold vs Physical Gold

Digital gold can be a sensible option for investors who do not want to deal with storing and insuring their own physical bullion. It’s stored in a vault, and you don’t need to worry about risks like theft or fire.

With digital gold, you also don’t have to go to a bullion dealer to buy it in person or order it online and wait for a valuable package in the mail. You can purchase digital gold right away with the click of a mouse.

The other main benefit of digital gold is flexibility. When you buy bullion, you are limited by the weights of physical products. There are a number of gram gold and fractional products available that can make physical bullion more flexible, but the 1 oz. coin or bar remains the most common way to buy bullion. One ounce of gold can be too expensive for some investors, and they want ways to buy smaller quantities. Digital gold provides that flexibility in that the gold you own does not have to be separated into individual products.

Benefits of Buying Physical Gold

For many investors, there is no substitute for physical gold bullion. Gold is widely used as a safe haven asset. It can protect your savings against inflation, recessions, stock market crashes, currency devaluation, and geopolitical uncertainty.

As an investment asset, prices tend to run counter to the market. In the wake of the 2008 financial crisis, investors flocked to the metal. Over a decade later, the COVID-19 pandemic had a similar impact on gold and silver prices.

Investors use gold to preserve their wealth and to hedge against a crisis. Because gold is perceived to be a lasting store of value with the potential to outlast fiat currency, investors want direct access and control over that wealth. You don’t have to wait for anyone else to give you access to your gold.

Gold investors often prefer to hold their assets themselves because there is very little transparency when it comes to vaulted gold. The concern is that you could be investing in a product that isn’t even there or, more accurately, that the other party has sold more paper or digital gold than they can back up with the real thing. There have been enough examples of corporate fraud where executives simply lied about the company’s performance or assets to make investors suspicious. When you want to eliminate those risks, nothing beats holding real gold in your own safe.

In addition to access, there’s also timing. When you buy bullion, even online, you don’t have to worry about delays affecting the timing of your purchase. You lock in at the current price of gold no matter when you receive the physical product, so you don’t have to worry about ordering it online. It is no slower than buying physical gold than digital gold.

If you want to learn the basics of bullion and the benefits of including it in your investment portfolio, you can get a free consultation with us to learn everything you need to know. Find out which products are best for your investment needs, common bullion terminology, and how the yellow metal stacks up against other methods of precious metals investing.

The Downsides of Investing in Digital Gold

While digital gold investments can be quick and convenient, there are downsides that are worth considering. First, consider the high trading platform fees. Vaulted gold costs money to insure and store, and if you own a digital gold investment, you will have to pay for them, usually through fees. On top of that, trading platforms that offer digital gold investments will also collect a fee on top of those costs. Fees may come in the form of annual charges or transaction fees.

Another downside of digital gold is that there is not much in the way of regulation in this industry. Although the term is gaining in popularity, it’s still relatively new, and how Canadian regulations apply is unclear.

The newness of the industry has investors concerned about the reliability of businesses entering the digital gold space. Some investors are concerned about how their digital assets are tied to real physical bullion. There are already concerns that “paper gold,” i.e., futures, ETFs, and options, outnumbers physical gold stores. That means that if everyone who has paper or digital gold assets wanted to redeem them for the real thing, there would not be enough real gold to fulfill those redemptions. In the kind of crisis that could trigger such a move, digital gold investments could turn up empty.

Finally, many bullion investors prefer to have direct control over their assets in case of a geopolitical crisis. Gold bullion is something that can be physically transported, and something that only they can access. Whether they store it in a safe at home, a safety deposit box, or find another storage solution, they want to have direct and sole access to their wealth, unlike vaulted gold.

Three stacks of gold coins in front of a stock trading index

How Does Digital Gold Compare to Gold ETFs?

Another way of investing in gold without taking physical possession of it is with a gold ETF (Exchange-Traded Fund). The investor buys shares in a fund that itself owns a mix of physical gold and investments like gold futures and options. It’s a quick way to access the gold market if you don’t prioritize physical ownership.

ETF investors do not own any gold at all. They own shares in the fund, and the fund itself owns bullion and other bullion-adjacent assets.

When you own digital gold, you are buying real gold; you just don’t take physical possession of it.

Digital Gold vs. Mining Stocks

Gold mining stocks are another way of investing in precious metals without directly taking ownership of the asset. With mining stocks, you are investing in the performance of a company rather than the price of gold itself. Again, investing in mining stocks does not include owning any gold, either digitally or physically.

What Type of Gold Best Fits Your Preferences and Investment Strategy?

Deciding between digital gold vs physical gold ultimately comes down to your preferences and your investment strategy. Ask yourself why you are investing in gold and align your investment with those goals.

Digital gold can be a quick and convenient way to access the gold market. You can buy flexible quantities that match the funds you have available, and you can buy gold with the click of a button. Some digital gold companies use blockchain technology to record transactions.

If you are hedging against a financial crisis or geopolitical uncertainty, you may want to prioritize owning physical gold. Physical bullion can also be a great option if you’re concerned about third-party risks such as fraud or a lack of regulations. As far as liquidity is concerned, physical gold takes a few extra steps to sell, but reliable bullion dealers usually make selling your gold simple.

If you’re new to precious metals, do your research before investing in gold. The more you know about the different ways you can invest, the more you can tailor your investment strategy to your preferences and goals.

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