Are gold ETFs backed by real gold?

The major physically backed gold ETFs (such as GLD and IAU) hold gold bullion in bank vaults. However, shareholders own shares of the trust, not direct claims on specific gold bars. The fund's prospectus typically limits shareholders' ability to redeem shares for physical gold, and redemption is only available to authorized participants in large blocks.

Is physical gold harder to sell than ETF shares?

Physical gold is highly liquid and can be sold to any reputable dealer, including MintBuilder, at prices tied to the live spot price. While it may take slightly longer than selling ETF shares online, the process is simple and straightforward. In a financial system disruption, physical gold may be easier to sell than ETF shares.

Which has lower fees, gold ETFs or physical gold?

Physical gold has a one-time premium at purchase, while ETFs charge ongoing annual fees of 0.25 to 0.40 percent. Over a holding period of ten years or more, the cumulative ETF fees typically exceed the one-time premium paid for physical gold, making physical gold the more cost-effective option for long-term investors.

Can I hold physical gold in an IRA?

Yes. IRS-approved gold coins and bars can be held in a self-directed Gold IRA. Products must meet minimum purity standards of 99.5 percent for gold. Popular eligible products include American Gold Eagles, Canadian Gold Maple Leafs, and gold bars from approved refiners. Learn more in our Gold IRA guide.

What is counterparty risk in gold investing?

Counterparty risk is the risk that an intermediary, such as a fund manager, custodian, or brokerage, fails to meet its obligations. Physical gold held in your possession has zero counterparty risk. Gold ETFs introduce counterparty risk through the fund sponsor, custodian bank, and brokerage, all of which must function properly for you to access your investment.

Do gold ETFs pay dividends?

No. Gold does not generate income, so gold ETFs do not pay dividends. In fact, the annual expense ratio means your shares represent slightly less gold each year. Physical gold also does not generate income, but it does not lose value to annual management fees.

How do I buy physical gold?

You can buy physical gold from a trusted dealer like MintBuilder. Choose from gold coins, bars, and rounds, then select home delivery or secure storage. Pricing is based on the current spot price plus a transparent premium. MintBuilder offers competitive pricing and a curated selection of products from sovereign mints and leading refiners.

Gold ETFs vs Physical Gold: Which Is the Better Investment?

Choosing between gold ETFs and physical gold is one of the most important decisions a precious metals investor can make. Both options provide exposure to the gold spot price, but they differ dramatically in terms of counterparty risk, ownership rights, fees, tax treatment, storage logistics, and long-term wealth preservation. This comprehensive comparison examines every angle so you can make an informed decision about which form of gold investment belongs in your portfolio.

What Are Gold ETFs?

Gold exchange-traded funds (ETFs) are financial products that trade on stock exchanges and aim to track the price of gold. The most well-known gold ETFs, such as SPDR Gold Shares (GLD) and iShares Gold Trust (IAU), hold physical gold bullion in vaults and issue shares that represent fractional ownership of that gold. When you buy shares of a gold ETF, you are buying a financial instrument, not gold itself.

Other gold-related ETFs may hold gold futures contracts, shares in gold mining companies, or a combination of gold-linked assets. For this comparison, we focus primarily on physically backed gold ETFs, as they offer the closest apples-to-apples comparison with owning physical gold directly.

What Is Physical Gold Investment?

Physical gold investment means purchasing tangible gold products, including gold coins, gold bars, and gold rounds, and taking direct possession or arranging secure storage. When you buy physical gold from a dealer like MintBuilder, you own the metal outright. There is no intermediary, no counterparty, and no paper claim standing between you and your gold.

Physical gold has been a store of value for over 5,000 years and remains the preferred form of gold ownership for central banks, sovereign wealth funds, and investors who prioritize wealth preservation and financial independence.

Counterparty Risk: The Critical Difference

Counterparty risk is perhaps the most important factor distinguishing physical gold from gold ETFs, and it overwhelmingly favors physical ownership.

When you own physical gold, your investment has zero counterparty risk. The gold is yours. No bank, brokerage, fund manager, or custodian can default, freeze, or restrict your access to it. In times of financial crisis, when counterparty risk matters most, physical gold is the only form of gold that remains entirely outside the financial system.

Gold ETFs, by contrast, introduce multiple layers of counterparty risk. You depend on the ETF sponsor to manage the fund properly, the custodian bank to store the gold securely, your brokerage to process trades, and the financial system to remain operational. During a severe banking crisis, market freeze, or exchange closure, you may be unable to access or sell your ETF shares. The fund's prospectus typically states that shareholders have no direct claim on the underlying gold. For a detailed analysis, see our guide to ETF vs physical gold ownership.

Fees and Ongoing Costs

Gold ETF Fees

Gold ETFs charge an annual expense ratio, typically between 0.25 and 0.40 percent of assets. While this sounds small, it compounds over time. A 0.40 percent annual fee means your gold holding loses approximately 4 percent of its value over ten years and nearly 8 percent over twenty years, even before accounting for tracking error. These fees are deducted by selling small amounts of gold from the trust, which means each share represents slightly less gold over time.

Physical Gold Costs

Physical gold involves a one-time premium over the spot price at purchase, which varies depending on the product. Popular bullion coins typically carry premiums of 3 to 8 percent, while bars can be purchased at lower premiums. Unlike ETF fees, this is a one-time cost, not a recurring annual drain. If you store gold at home, there are no ongoing storage fees. Professional vault storage, if desired, typically costs between 0.5 and 1 percent annually, comparable to or lower than ETF expense ratios.

Liquidity and Ease of Trading

Gold ETFs offer high liquidity during normal market conditions. Shares can be bought and sold instantly during trading hours through any brokerage account, making them convenient for investors who want quick exposure or need to adjust positions frequently.

Physical gold is also highly liquid, though the process differs. Reputable dealers like MintBuilder buy gold back at competitive prices tied to the live spot price. Selling physical gold typically takes slightly longer than clicking "sell" on a brokerage platform, but the transaction is straightforward. In a true crisis scenario, physical gold may actually be more liquid than ETF shares, as it can be exchanged privately and does not depend on functioning exchanges or brokerages.

Storage and Security

One of the most common objections to physical gold is the need for storage. In reality, gold storage is simpler than many investors assume. Options include home safes, bank safe deposit boxes, and professional vault storage through allocated storage programs. Each option has trade-offs in terms of cost, accessibility, and security.

Gold ETFs eliminate the storage question for the investor, as the custodian bank holds the gold. However, this means trusting a third party with your wealth and accepting that you cannot audit, access, or take delivery of "your" gold in most circumstances.

IRA Compatibility

Physical gold can be held in a self-directed IRA (often called a Gold IRA), provided the products meet IRS purity and fineness standards. This allows investors to enjoy the tax advantages of retirement accounts while holding tangible gold. Read our complete guide to Gold IRAs for details on eligible products and the setup process.

Gold ETF shares can also be held in traditional IRA and 401(k) accounts through most brokerages, making them accessible within existing retirement structures without needing a specialized custodian.

Tax Treatment

Tax treatment differs between the two investment types and can significantly affect after-tax returns. Physical gold held for more than one year is taxed as a collectible at a maximum federal rate of 28 percent, which is higher than the standard long-term capital gains rate of 15 to 20 percent that applies to most securities.

Gold ETFs that are structured as grantor trusts (like GLD and IAU) are also taxed at the 28 percent collectibles rate, meaning they offer no tax advantage over physical gold. Some gold ETFs structured differently may qualify for lower capital gains rates, but investors should consult a tax advisor for specific guidance.

Which Investment Suits You?

Choose Physical Gold If You:

Prioritize wealth preservation and zero counterparty risk
Want to hold gold outside the financial system
Are building a long-term position (5+ years)
Want to include gold in a self-directed IRA
Value privacy and direct ownership
Want an asset that performs in a true systemic crisis

Choose Gold ETFs If You:

Need instant, frequent trading capability
Want to make short-term tactical allocations
Prefer holding all investments in a brokerage account
Are comfortable with counterparty risk
Are investing smaller amounts where premiums matter more

For most long-term investors focused on wealth preservation, physical gold offers clear structural advantages. The one-time premium is a modest cost compared to the compounding annual fees of an ETF, and the elimination of counterparty risk provides peace of mind that no paper product can match. Explore MintBuilder's selection of gold coins and bars to start building your physical gold position today.

Frequently Asked Questions

Are gold ETFs backed by real gold?: The major physically backed gold ETFs (such as GLD and IAU) hold gold bullion in bank vaults. However, shareholders own shares of the trust, not direct claims on specific gold bars. The fund's prospectus typically limits shareholders' ability to redeem shares for physical gold, and redemption is only available to authorized participants in large blocks.
Is physical gold harder to sell than ETF shares?: Physical gold is highly liquid and can be sold to any reputable dealer, including MintBuilder, at prices tied to the live spot price. While it may take slightly longer than selling ETF shares online, the process is simple and straightforward. In a financial system disruption, physical gold may be easier to sell than ETF shares.
Which has lower fees, gold ETFs or physical gold?: Physical gold has a one-time premium at purchase, while ETFs charge ongoing annual fees of 0.25 to 0.40 percent. Over a holding period of ten years or more, the cumulative ETF fees typically exceed the one-time premium paid for physical gold, making physical gold the more cost-effective option for long-term investors.
Can I hold physical gold in an IRA?: Yes. IRS-approved gold coins and bars can be held in a self-directed Gold IRA. Products must meet minimum purity standards of 99.5 percent for gold. Popular eligible products include American Gold Eagles, Canadian Gold Maple Leafs, and gold bars from approved refiners. Learn more in our Gold IRA guide.
What is counterparty risk in gold investing?: Counterparty risk is the risk that an intermediary, such as a fund manager, custodian, or brokerage, fails to meet its obligations. Physical gold held in your possession has zero counterparty risk. Gold ETFs introduce counterparty risk through the fund sponsor, custodian bank, and brokerage, all of which must function properly for you to access your investment.
Do gold ETFs pay dividends?: No. Gold does not generate income, so gold ETFs do not pay dividends. In fact, the annual expense ratio means your shares represent slightly less gold each year. Physical gold also does not generate income, but it does not lose value to annual management fees.
How do I buy physical gold?: You can buy physical gold from a trusted dealer like MintBuilder. Choose from gold coins, bars, and rounds, then select home delivery or secure storage. Pricing is based on the current spot price plus a transparent premium. MintBuilder offers competitive pricing and a curated selection of products from sovereign mints and leading refiners.

Whether you choose gold ETFs, physical gold, or a combination of both, the most important step is gaining exposure to gold in a way that matches your investment objectives. For investors who value direct ownership, zero counterparty risk, and long-term wealth preservation, physical gold is the clear choice. Shop gold at MintBuilder and check the current gold spot price to get started.