Physical Gold vs ETF vs SGB: What’s the best way to own gold?

If you want the short answer buy physical gold. But, if you want to understand why keep reading.

– A Wizard

Gold is used as an investment tool by billions around the world. In India its a tradition to buy gold every year on a festival. It is rooted in our tradition that gold is of high value. But, modern economist and some of the greatest financial advisors are against gold investment as hedge including me. All these great minds are not entirely wrong. In real world gold doesn’t hold any value other than the value of beauty. But, what if the piece of paper that we called money is replaced with gold? In old days gold was highly valuable as it was used in monetary system. The confidence of value investors like warren buffet is low in gold because mostly it is used for jewelry. And people lose interest in things easily. If today we love gold jewelry maybe tomorrow you won’t find them as attractive.


When you invest in anything the first thing you need to figure out is the purpose of that investment. For me the sole purpose of gold is to act as an hedge to my portfolio for long term. My primary investment is still equity but not too distant future there will be an economic meltdown. The current monetary system will fail. Even though the cash you have will not become zero but it will lose its significant value. And history has witnessed gold and silver act as the best monetary tools. Once the paper money starts losing its value gold will replace it and gold will start rising like a phoenix. Now you might ask If I am so sure of economic meltdown why don’t I put all my money into gold? While that’s a million dollar question men who die rich never put all their eggs in one basket.

Why Physical Gold?

See, I know SGB sounds a great investment you get the benefit of rise in gold price and on top of that government pays you 2.5% interest every year. But, it is a piece of paper on top of that it locks in your money. The sole purpose of investing in gold is that it acts as an emergency fund in time of economic crisis. SGB defeats the sole purpose. On top of that you can’t convert SGB into gold and you have no control over it. The government may decide to halt your SGB trading for an endless time period in time of economic crisis. The entire control in case of SGB of whether you will get paid or not is in the hands of government. Therefore, it can not act as an emergency hedge investment.

Gold ETF are similar to SGB in this scenario just a little low quality. ETFs don’t give you a fixed 2.5% annualized return on top of your gold price earnings. But, ETF has same problem as with SGB you don’t have any control. ETF is controlled by its managing company and how much gold do they have who knows? In the time of crisis would they actually pay anything? They are infact not even liable to pay you interest or let alone give your money back given they saw a loss in their balance sheet.

Physical gold is something you own and control. No one else can take this gold away from you unless you lose it to a robbery or sell it. Now, in order to solve the theft issue we have a new option called digital gold. Digital Gold is good as it holds gold in your name in a bank locker and there are no conditions as such that they are not liable to pay money in time of crisis. They will have to give you your gold whenever you ask for it. You can infact, use a government service like MMTP-PAMP or GPAY which is backed by the same organization. So, go ahead buy some gold protect yourself from a crisis.

manorinfinity Written by:

Complex Problem Solver, Outloud Thinker, An Outstanding Writer, and a very curious human being

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