Physical Gold: A Complete Guide
Very few commodities or possessions have had popularity, charm, excellence, and usability that lasted for centuries. Gold is undoubtedly among those elite few and continues to be sought-after. Physical gold has upheld its elite status from the time of ancient civilizations to existing modern economies. That is all thanks to its beauty, scarcity, physical attributes, inert abilities, etc. Gold symbolizes power, wealth, status, and prestige in cultures across the globe.
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Gold has adorned Egyptian pharaohs and served as a financial anchor during economic uncertainties—proving how it continually fascinates humans across entirely different periods. To learn more and appreciate gold better, this article discusses the historical significance of the metal, its role in defining economies over the years, its never-ending legacy, investment potential, costs (buying, storage, etc.), function in personal finance, etc. The main topics of discussion are:
- Physical gold’s cultural and historical significance
- Properties and attributes of gold
- Different types of physical gold
- Investing in gold and storing them
- Gold price determinators and movers, and more
Whether you’re an investor looking to diversify your portfolio or someone wanting to get to know gold in-depth, this article is for you.
Physical Gold – Historical and Current Significance
During ancient times, physical gold symbolized power, wealth, and divinity, mostly reserved for deities and rulers. It was considered gods’ flesh and was used to make statues of deities, sacred adornments and objects for altars, tombs, and temples. Tutankhamun’s mask and other ancient Egyptian pharaohs’ masks were made of gold, serving as testaments to gold’s cultural significance during those days.
Gold was a legal tender or medium of exchange during early trade in ancient Rome and Greece, aiding economic transactions and supporting commerce between civilizations. The Roman Empire extensively used gold coins (like the Aureus), solidifying its financial dominance. As societies and humans progressed, gold assumed key positioning in royal events, religious rituals, artistic expressions etc., exhibiting its lasting influence and appeal. The founding of major gold reserves in the 16th century kickstarted the era of gold exploration.
Recent history showcases gold’s pivotal part in shaping monetary systems and economies. The “gold standard,” which tied fiat money to a specific quantity of gold, offered stability to financial transactions and institutions, instilling and upholding people’s trust. When the gold standard was in effect, countries amassed the yellow metal to demonstrate their economic strength. Even after the monetary system’s abandonment, gold remained a global benchmark for money stability and serves as an inflation hedge.
Gold plays a big part in people’s personal lives, events, celebrations, etc. It is a show of wealth and status. Gold cannot be separated from most celebrations and cultural practices across the globe. Gold is gifted during festivals, weddings, and other special occasions. It signifies prosperity, blessings, and good fortune. Not to mention, gold’s forever presence in ornaments and jewelry attests to the physical metal's timeless appeal and intrinsic value.
Characteristics and Properties of Physical Gold
Gold has quite a few unique traits and characteristics that set it apart from other metals, lending to the practicality and desirability of the precious metal. Although yellow is not unique to gold, the striking golden yellow color belongs to the precious metal. Very few metals appear bright yellow naturally the way gold does. The distinctive color is usually linked with beauty, luxury, and status.
Looks aside, gold is dense and heavy. The metal’s density plays a part in its inherent ability to withstand environmental degradations, such as corrosion, lending increased durability and longevity to the metal. Gold doesn’t react with air, moisture, etc. It remains untarnished, rust-free, and non-corroded, irrespective of its environment. This inertness is likely why gold doesn’t lose its sheen and stays blemish-free forever.
Gold is also malleable and can be shaped and molded easily without cracking or breaking. Gold can be hammered into skinny sheets—a troy ounce of gold could be flattened into a sheet spanning up to 100 sq. ft. in area. The malleability makes making coins, jewelry, and other objects out of gold relatively easy. Gold is biocompatible, making the metal ideal for dentistry applications (dental crowns, fillings, bridges, etc.).
Gold is a strong conductor of heat and electricity. Its electrical conductivity is among the highest. The only two metals with better electrical conductivity are silver and copper. The high conductivity implies electricity can pass through the metal with little to no resistance, making it vital in telecommunications and electronic applications. Gold’s excellent thermal and reflectivity properties are ideal for making precision engineering items, such as telescopes, lasers, scientific instruments, etc.
It’s common knowledge that gold is used to make circuit boards, connectors, and other electronic components. Gold is used in LCD and OLED displays for its conductivity and reflective attributes. The yellow metal is used to make solar panels or the contacts that help make electricity from sunlight. Gold is valuable in aviation space, making satellites, spacecraft circuits, and electronic components. Electric vehicles, wearable electronics, etc., also use gold in some capacity.
Nanoparticles of gold help with cancer treatment, imaging agents, drug delivery, etc. Implants and prosthetics coated with gold provide corrosion resistance, biocompatibility, and antimicrobial qualities, which help in dental and surgical applications.
Physical Gold Forms
Physical gold can assume different forms. It can also be used to back up paper assets and be drivers of the value of gold stocks, bonds, and gold mutual funds. But to own gold in the metal, there are only two ways: bullion and jewelry. Although artifacts, accessories, and other goods are in gold, the overall gold content in those pieces usually needs to be higher for consideration as a standalone gold item.
Physical bullion comprises coins and bars. A gold bar, or a gold bullion bar, is usually a pure gold rectangular bar. The bar’s gold content is 24 karats, with a millesimal fineness of at least 999 (99.9 percent gold). Gold bars come in different sizes, ranging from several fractional-sized bars lighter than an ounce in weight to bars weighing several ounces or kilos.
Gold bars are usually at least 99.5 percent pure because that’s their only selling point. They do not carry the historical value or unique aesthetics of bullion coins. All gold bars look plain and say the same things (fineness, size, etc.). A few gold bars, such as the Valcambi Gold CombiBar, try to stand out with their rear designs and packaging. But those changes still don’t make a significant impact. Perhaps the biggest reason gold bars are so generic is that they are made in huge quantities yearly.
Those keen on buying gold and not wanting to pay a premium for the piece’s backstory, historicity, and design should look to buy gold bars. Bullion bars are sold at a lower premium because they are mass-produced or are easier to make.
Gold coins are minted in different sizes as well. But they differ from gold bars in every other way. They are round, bear unique designs with a backstory, have a face value, etc. Although most gold coins sell for a price higher than gold’s spot price, some could sell for a lot more if they are rare and highly sought-after. Popular gold coins include the American Gold Eagle, South African Krugerrand, and Canadian Maple Leaf, to name a few.
The American Gold Eagle and the Canadian Maple Leaf are the world's two most popular collectible coins. The Maple Leaf is a 24-karat, 99.99 percent pure gold coin. The Krugerrand and American Eagle are both 22-karat gold coins. But they still are pretty sought after because, as mentioned before, the value of a gold coin is determined by more than just the piece’s gold content. The Krugerrand and Eagle coins have rich histories that collectors and investors fancy or like to have a piece of.
Although gold bars come in petite sizes, gold coins are considered more portable due to their round shapes. They are also a tad more recognizable and liquid than gold bars. Not to mention, gold coins are much more aesthetically appealing than bullion bars. But these advantages come at a price. A gold coin sells for a slightly higher premium than a gold bar of the same weight and purity. The reasons are limited production, minting costs, collector demand, etc.
Another downside to gold coins is the greater risk of counterfeits. Compared to bars, a gold coin is more susceptible to fakes. Therefore, buying bullion coins at the right place and after ticking all boxes that determine authenticity is critical—more on steering clear of counterfeits later in the article.
Gold jewelry is another form of physical gold. But it’s not the one investors prefer. Gold jewels, such as necklaces, bracelets, and rings, talk more to the masses. Gold ornaments are usually not pure gold. The amount of gold they contain varies with the piece, design, and the item’s price. Because gold is a soft metal, other metals are added to lend the piece rigidity so that the jewels retain their shape or do not bend or warp with use. Gold investors and collectors steer clear of jewelry for this very reason: less gold content.
Gold ornaments are not inexpensive. The savings made with less gold usage are usually offset by the costs of the skills, time, and effort involved in making gold adornments. Its price tag usually doesn’t entirely represent the piece’s gold content or melt value. That also means lower liquidity compared to gold bullion coins and bars. Jewelry does not have the wide recognition and acceptance coins and bars have. Their weights are not standardized, and purity is always a question mark. Gold bars and coins, on the other hand, have clear markings, offering reassurance about their quality.
Why Invest in Physical Gold
Because gold has a rich, long history and is inherently valuable, it’s considered a solid investment item. The role gold has played as a safeguard against currency fluctuations, inflation, geopolitical risks, etc., over the years cannot be overlooked by any shrewd investor. And the metal continues to provide that buffer to any investment portfolio when the markets are down. The following are the key reasons gold investments continue to be in vogue:
- Value store: Gold has intrinsic value and is globally recognized as a precious asset. Paper money, on the other hand, requires backing from banks and governments. And if they are backed, not all currencies are accepted in different parts of the world. Physical gold will never plummet in value to zero. Fiat currency can become worth nothing overnight.
- Universal appeal: Gold is not regional. Its appeal is universal. Gold is recognized and valued across various cultures and nations. It can be easily liquidated into money anywhere.
- Track record: Gold has intrinsic value and has provided cover against financial meltdowns in the past multiple times. Its claim to fame as a reliable protection asset against financial crises and economic downturns is not just on paper. During the 1929 Great Depression, the 2008 sub-prime mortgage crisis, the 2020 COVID crisis, etc., people thronged on gold to safeguard their wealth.
Adding Gold for Portfolio Diversification
Physical gold is usually added to an investment portfolio for diversity or to spread the risk, thanks to gold’s low correlation with stocks, bonds, and other similar asset classes. Although gold is valuable, it doesn’t generate income (dividends or interest money) like paper-based assets. The value of gold entirely relies on its ability to appreciate over a period.
That makes it an ideal long-term investment vehicle and the reason experts recommend holding not more than five percent of one’s total investments in gold. If your risk tolerance is low and you are focused more on safeguarding wealth than helping it grow, you may allocate up to or more than 10 percent of the portfolio to gold investments.
Buying Physical Gold
To buy physical gold is a straightforward process, but consider a few things before purchasing. Buy gold from a reputable seller to ensure purity, quality, and authenticity. Steer clear of individual sellers or online marketplaces. Buying gold online or offline is not an issue. Buying it from a reputable dealer or authorized seller with a good track record, solid reputation, favorable customer reviews, etc., is critical. The American Precious Metals Exchange (APMEX) is an ideal place to buy gold. Check out the London Bullion Market Association (LBMA) for gold industry news and price updates.
If buying bullion coins, consider those made by government mints, such as the Royal Canadian Mint, United States Mint, and Perth Mint. Their coins are reliable (offer what’s claimed) and guarantee purity. For gold bars, seek those with assay certificates provided by reputable assayers. The certificate offers authenticity and purity information. Bullion coins have certifications and hallmarks denoting quality and genuineness.
If buying your gold from a lesser-known source, consider verifying the piece’s purity and legitimacy with a third party. Even then, it’s not recommended unless you’re a goldsmith or can recognize fake gold by looking at it. A few other reputed online stores or reputable dealers to buy gold from include SD Bullion and JM Bullion, to name a few.
Steering Clear of Counterfeits
Know the product beforehand to avoid falling prey to the fake gold coin or bar trap. If looking to buy a particular gold coin, for instance, know the original coin’s physical dimensions, weight, design details, etc. That way, you can check if the coin you’re eyeing is in conformance. Gold coins and bars have standard sizes. If a particular bullion’s size or weight is unique, it’s likely a fake.
Also, the price can be a clear giveaway. The market price of gold bars, coins, and gold jewelry is based on the spot price. As the price fluctuates, the retail prices of gold items go up and down too. Therefore, if you find a gold bar, coin, or piece of jewelry for a much lower cost than average, it’s not a deal but a fake. You can, of course, do various tests on the gold to check its authenticity after purchase. But buying it from the right place eliminates all that hassle and prevents a lot of headaches too.
If you’d like to learn more about how to check the authenticity of a gold bar, check out our article, “How Do You Know If It is a Fake Gold Bar?.” For a broader look, read “How to Tell If Gold is Real? Spotting Real vs. Fake Gold.”
Storing Gold Safely and Safeguarding It
Physical gold can be stored in home safes or the safe deposit box of banks. The home safe in which you’re considering keeping your precious belongings must offer solid protection against fire and theft. It should be specifically made to store valuables. Ensure the safe is big enough and must be securely affixed to the wall or floor. No one, except you and your family, should know the safe’s location in the house. And keep it very clandestine so no visitors to your home accidentally learn the safe’s location.
Opt for safe deposit boxes or bank storage solutions if you want peace of mind and don’t want to bother with the modern security systems and measures banks employ to safeguard their vault’s contents. The drawback with bank storage is time-restricted access. With home safes, you can check on your precious items anytime. Also, bank vaults cost you money (storage and processing fees), adding to the total gold ownership cost. Besides banks, other financial institutions or third parties also offer storage facilities.
Even though bank vaults and home safes are reassuring, they are not foolproof. It, therefore, is wise to insure your gold. Note that home insurance doesn’t safeguard the house’s contents, certainly not your safe’s contents. You must procure additional or separate insurance to protect against damage or loss. Get talking to an insurance professional to understand your coverage options. Also, keep the receipts, invoices, authenticity certificates, etc., handy to legitimize the gold and facilitate future transactions.
Factors Affecting Gold Price
Gold prices primarily fluctuate based on supply and demand, buyer sentiment, and other economic indicators. “Supply” denotes the quantity of gold produced globally by gold mining companies. If the production drops or new gold resources are found, that would affect demand and reflect on the gold’s prices. Central banks have gold reserves. The amount they keep or liquidate also impacts the prices of gold.
As mentioned earlier, when inflation rises or markets tumble, people lose confidence in paper money and paper-based assets and buy gold in larger quantities. Since gold supply is limited, the increased demand during financial turmoils or a geopolitical crisis causes the precious metal’s value to go up. The demand decreases or stabilizes during deflation or when economic activities return to normalcy.
Market speculation or conjectural activities or stands taken by investors and experts may also influence the prices of gold. Sentiment-driven trading, market rumors, short-term trading tactics, and other similar factors could cause prices to fluctuate.
Gold Price Performance Historically
Since gold has a long, documented history, learning past price patterns is key to predicting current movements in the prices of gold. The Bretton Woods system’s demise in 1971, which brought the curtains on the gold standard, pushed gold into a state of flux. In 1971, gold’s price was $37 an ounce. It touched the peak price of $843 in 1980. During the late 1990s, prices had fallen to close to $250.
A similar impact on gold prices happened during the 2008 mortgage crisis. Prices were around $800 an ounce in 2008. In three years, in 2011, prices breached the $1,900 mark. And in the last few years, particularly during the COVID pandemic, prices have gone up. Geopolitical uncertainties, global trade tensions, monetary policy decisions, etc., have also caused the prices of gold to rally.
Read more: Gold Price Fluctuation
Undoubtedly, gold has charm, appeal, and varied applications. Its major role in different ancient civilizations and the value store it was for centuries and continues to be is unparalleled. Other precious metals don’t have the same history, physical properties, rarity, beauty, etc., as gold. It’s unsurprising to see the physical metal being popular and viewed as a symbol of prestige and wealth.
If you’re considering buying gold, know the different forms and which suits your investment objectives the best. Also, have proper plans for its storage. If you are not particularly interested in owning the metal and care more about the value appreciation it offers, learn to time your gold trades. Don’t buy gold when its prices are at their nadir. Similarly, hold on to gold when the economic climate is stable. Go the paper gold route if you’re only interested in gold exposure and don’t want to own a piece of the metal.
Regardless, stay informed about the market, conduct proper research, seek professional advice, etc., to make the right and prompt decisions and ensure your gold investment benefits you in the long run and continues to remain a good investment choice.
How physical gold serves as an inflation hedge?
When inflation goes up, paper money’s purchasing power decreases. To prevent a further dip in value, people buy gold because it has intrinsic value and helps preserve the value of the funds used to purchase the metal. Historically, the price of gold has increased with inflation because more people bought gold during the period. And not just inflation; whenever currency destabilizes, such as during a geopolitical crisis, people pivot to gold.
Is owning gold stocks and gold funds equivalent to purchasing real gold?
No, gold funds, stocks, or a gold ETF (exchange-traded funds) do not amount to metal ownership. They only offer exposure to gold’s price movements or the gold industry. Mutual funds or ETFs (such as iShares Gold Trust) are typically invested in the metal or the securities of firms involved in gold-related activities, such as mining, trading, refining, etc.
The investors in those funds benefit from the association between the fund and the underlying asset. Gold futures is arguably the only financial arrangement that results in owning the metal. To get rolling with gold futures, you need a brokerage account (with an offline or online broker) and understand the various complexities of the contract.