Investment in gold is popular with individuals who wish to secure their money. There are two solutions for investing: the purchase of physical gold, which will subsequently require a storage solution, and the purchase of paper gold, which is similar to an investment in the stock market.
Cut for different needs, these choices do not have the same advantages and disadvantages. You must therefore learn to differentiate between them to make your choice of investment.
What is paper gold?
Aimed at experienced investors, paper gold is a financial product that simulates the stock market performance of physical gold. Close to a stock market asset, it comes in the form of a contract, technically giving the right to its amount in physical gold. It is therefore based on the price of gold, its purchase, and its rapid sale making it possible to realize capital gains in the event of a variation in the quotation of gold.
Paper gold is also available in the form of products grouped under the name of “trackers”, also referred to as ETF (exchange-traded funds) products. Some are based on the price of precious metals, in particular, silver metal; but yellow metal is the most popular.
Paper gold is designed to facilitate speculation on stock market shares and investment in listed companies: unlike physical gold, which follows the stock price, it does not require storage and its value can be immediately converted into shares. The purchase of paper gold is therefore popular for a short-term return through trading: you have to know when to buy and sell at the best time. Like any stock market action, this type of investment can be risky in the event of an economic crisis or a fall in the price of gold.
Physical gold and paper gold: the same value?
Technically, paper gold follows the price of physical gold and gives the right to withdraw physical gold. However, stock market speculation has driven the ratio of paper gold to physical gold to over 500. This means that the same gram of physical gold has been translated into over 500 times its paper version, to be then invested in the stock markets! The prevailing economic system and its relative stability allow this balance to continue to operate.
However, in the event of a financial crisis, paper gold investors who would like to recover their physical gold could face difficulties, since there would not be enough physical gold in exchange for the paper gold contracts. Paper gold is therefore not a reliable investment over the long term and should be reserved for stock market speculation over a fixed period.
Advantages and disadvantages of paper gold
As we have seen, paper gold is interesting as part of a temporary investment in the financial markets, intended to generate a quick return. It will be easier to handle by connoisseurs of the stock market system because its volatility makes it unreliable in the long term. Trading on paper gold is subject to the vagaries of the stock market: the company from which you buy paper gold may go bankrupt and find itself unable to reimburse you, and in this case, you would lose everything.
However, it is also its “virtual” aspect that makes it practical: it does not require storage compared to physical gold and can be quickly translated into physical gold or cash. A real haven, gold appears to be solid in terms of investment: paper speculation on this metal is thus prized for a short-term return, due to the strong growth in its value over the last fifteen years.
