Physical Gold vs. Gold ETFs: What You're Actually Buying

Gold ETFs like GLD and IAU have made gold investing easier than ever. You can buy exposure to the gold price through a brokerage account in seconds. But there are meaningful differences between owning a gold ETF and owning physical gold — and they matter more than most investors realize.

What a Gold ETF Actually Is

A gold ETF is a fund that holds gold bullion (or gold futures contracts) and issues shares that trade on a stock exchange. When you buy shares of GLD, you own a proportional claim on the fund's gold holdings. You don't own specific bars. You can't take delivery. You own a financial product that tracks the price of gold.

This is perfectly fine for many investors — particularly those who want short-term gold price exposure in a tax-advantaged brokerage account. But it's not the same thing as owning gold.

The Differences That Matter

Counterparty risk. Physical gold in your possession has zero counterparty risk. It doesn't depend on a bank, custodian, fund manager, or exchange functioning properly. An ETF introduces multiple layers of counterparty risk: the fund sponsor, the custodian bank, the authorized participants, and the exchange itself. In normal markets, this risk is negligible. In a financial crisis — which is often when people want gold most — it's not.

Fees. Gold ETFs charge annual expense ratios, typically 0.25–0.40% per year. Over a decade, that's 2.5–4% of your position eaten by fees. Physical gold has a one-time buy premium and a one-time sell spread, but zero ongoing cost to hold. If your time horizon is long, physical gold is often cheaper.

Liquidity in a crisis. ETFs trade during market hours on exchanges. In a true financial disruption — exchange closures, trading halts, brokerage outages — you may not be able to access your position when you need it most. Physical gold can be sold or traded 24/7 to any willing buyer, regardless of what the stock market is doing.

Taxes. Gold ETFs are typically taxed as collectibles at the federal level, meaning long-term capital gains can be taxed at up to 28% rather than the lower 15–20% rate that applies to most equities. Physical gold is also subject to collectibles tax treatment, so this is largely a wash — but it's worth noting that the ETF doesn't provide a tax advantage here.

Privacy. ETF transactions are tracked through your brokerage account and reported on standard tax forms. Physical gold transactions have different reporting thresholds and, in many cases, less automatic disclosure. This isn't about tax avoidance — it's about the level of visibility into your holdings.

Tangibility. This is subjective but real. There's a reason central banks hold physical gold in vaults rather than shares of GLD. Physical possession eliminates reliance on any third party to honor your claim to the metal.

Where ETFs Win

ETFs are undeniably more convenient for:

Small, frequent trades — You can buy $500 of GLD in seconds with no shipping or storage concerns.
Tax-advantaged accounts — If you want gold exposure inside a 401(k) or standard IRA where you can't hold physical metal, ETFs are the practical option. (Precious metals IRAs exist but involve specialized custodians and higher fees.)
Short-term trading — If you're trading gold's price movements, ETFs offer instant execution and tight spreads.

Where Physical Wins

Physical gold is the better choice when:

You're holding for the long term. No annual fees eroding your position.
You want insurance against systemic risk. Physical gold works when financial systems don't.
You value direct ownership. No custodian, no fund manager, no intermediary between you and your metal.
Estate planning. Physical gold is simple to pass to heirs without liquidating through a brokerage.

They're Not Mutually Exclusive

Plenty of investors hold both — an ETF for convenient portfolio allocation and physical metal as a long-term store of value. The key is understanding what you're buying in each case and what role it plays in your overall strategy.

If you're interested in building a physical position, Florida Gold Exchange carries gold coins, bars, and rounds with live pricing and multiple payment options. We also buy back — so when it's time to liquidate, we post live bids you can check before you sell.