What is Paper Gold?
Gold has been used as money for at least 5,000 years – longer than any other medium of exchange. Gold is unique among assets because it is both portable and divisible. It does not lose value over time, and it can be easily traded without concern for the time and place of trade. Paper gold is a type of derivative product that allows investors to make money from rising prices in the gold market without buying and storing physical bars.
How does paper gold work?
Like any other derivative, paper gold is based on an underlying commodity. But with paper gold, you’re betting on the price of gold rather than buying shares in a company or another financial asset.
The value of paper gold is derived primarily from two factors — how much the spot price of gold rises over a given period and how much the interest rate falls during that same period.
The process of buying and selling paper gold works much like buying stock through a broker or an online trading service. It’s quick, easy, and requires no special storage space. One significant benefit of paper gold over physical assets such as a precious metals IRA is that there are no storage costs since you don’t have to keep your investment in a safe deposit box somewhere. You can own as much or as little paper gold as you want without making any special accommodations —make sure to hold onto your digital records when you buy them!
What are the benefits of paper gold?
There are many benefits to holding gold in paper rather than physical gold bullion. The first is security for both your investment and yourself. By holding your gold in the form of paper, it is much harder for someone to steal it from you or for you to lose your investment. Such a theft would involve stealing the actual metal bars themselves, which are much more conspicuous than certificates of ownership.
Another benefit is liquidity. Because of their easier marketability, paper investments can be bought and sold much more quickly than gold bullion. This can be an advantage if you need money quickly but don’t want to sell your investment immediately. Also, as opposed to physical gold bullion, paper gold doesn’t have storage costs. This makes paper investments especially attractive if you are not planning on holding them for a long time or if you plan to buy and sell often.
Paper gold represents a claim on physical gold
Paper gold represents a claim on physical gold. It is a contract or certificate issued by a trustee (usually a bank) guaranteeing that the bearer owns a certain quantity of gold and can take delivery at any time. The paper gold market is an over-the-counter market in which all contracts are bilateral.
It is easy to buy and sell paper gold on international exchanges
International trading exchanges are open 24 hours a day, five days a week, and accept investors from all around the world. There are many ways to trade gold, including Gold ETFs, Gold Certificates, and Gold Futures. Before buying paper gold, you need to research the products you’re interested in. This will help you get the best price.
Takeaway: Paper gold is a wise investment for the modern investor who doesn’t want to store physical gold but still wants to profit from price increases.
