Paper Gold
Paper gold refers to any gold-linked financial instrument where the investor has economic exposure to gold prices but does not hold physical gold. Common forms include gold ETFs, COMEX futures contracts, gold certificates, unallocated gold accounts, and gold mining stocks.
Types of Paper Gold
- Gold ETFs (e.g., GLD, IAU): Exchange-traded funds that hold physical gold in trust. You own shares, not the gold itself. Redemption for physical gold is typically only available for institutional investors in large lot sizes.
- COMEX futures: Standardized contracts to buy or sell gold at a future date. Most are cash-settled without physical delivery.
- Unallocated gold accounts: Bank accounts denominated in gold weight where the bank holds pooled gold. You are a creditor of the bank, not the owner of specific bars.
- Gold certificates: Documents certifying gold ownership through a bank or vault, without taking physical delivery.
- Gold mining stocks: Equity stakes in mining companies — highly leveraged to gold prices but subject to operational and management risk.
Paper Gold vs. Physical Gold
| Factor | Paper Gold | Physical Gold |
|---|---|---|
| Counterparty risk | Yes — ETF manager, bank, or broker | None — you own the metal |
| Liquidity | Very high — trades like a stock | Good — dealer buyback within days |
| Storage costs | Built into ETF expense ratio (~0.25%/yr) | Home safe or vault fees |
| Systemic risk | Exposed to broker/ETF failure | Not exposed if physically held |
The Basel III Impact on Paper Gold
Under Basel III, unallocated gold positions held by banks are subject to a Net Stable Funding Ratio (NSFR) charge, making paper gold more expensive for banks to maintain. This regulatory shift is seen as a structural incentive for institutions to prefer allocated physical gold.
Own the Metal — Not the Paper
GoldBuller sells physical gold bullion with no counterparty risk. Fully insured shipping. Competitive pricing above live spot.
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