Real Metals Vs. Paper Metals: Who Wins???

One common question I get from clients;  what is the difference between real, physical precious metals are, and their paper counterparts, like Exchange Traded Funds (ETFs). It is certainly a possibility to buy some gold on the stock market via buying shares of GLD ETF (SPDR Gold Trust) – a popular gold-backed ETF. There are ETFs for silver, platinum, and palladium as well. The question is, what is a better investment – real, physical precious metals, or ETFs?

Getting a Physical Delivery

Investors are often excited about the fact that they can buy paper metals because the ETFs are backed by the real thing. With that being said, there are more shares of these ETFs offered relative to the overall quantity of the physical product. For the average investor, it is simply not possible to get the physical product delivered if you invest in ETF’s! You would need to own 100,000 shares of GLD to have the ability to request a physical delivery of gold! Physical precious metals can be delivered at any time, and to almost any place in the world!


ETFs of precious metals are liquid products, meaning you can buy and sell them instantly. Many investors believe that physical precious metals are illiquid products, meaning you can’t buy and sell them as efficiently as ETFs. Ladies and gentlemen – this is a myth! As you are probably aware, dealing with a firm like Worldwide Precious Metals, who has international vaults solves this problem. I would argue that buying the real thing is MORE liquid in a vaulting system than via the stock market. I have personally placed many orders after market hours, and those orders get filled during the same day ! When I would place after-market orders in the stock market, those orders never got filled until the following morning on a business day


Let’s first examine which asset offers a better return on investment. Real gold is represented by the orange line in the chart above, while GLD is represented by the blue line. At the time of this writing, if you bought real gold in 2005, your ROI today would be 206.75%. If you bought GLD in 2005, your ROI would be 189.59%! One must question why real gold offers a better ROI by 17.16% when compared to GLD?

My belief is that GLD allows more traders to take short positions, and actively be engaged in derivatives of GLD. It is even more fascinating that in terms of percentages, the price action used to be identical between the 2 assets. Around 2011, the price action started to diverge in terms of percentages. Gold’s price action is consistently higher in terms of percentages than GLD. This means that the probability of making a profit, if you are seeking an ROI, is higher in gold, than it is in GLD. I think it is safe to say that GLD is more manipulated than real gold!

Next, investors often argue that GLD is cheaper than gold – I disagree! The first issue with buying shares is your commission structure. If you buy 1 share of GLD at its’ current price, $125.75 USD and you pay a $10.00 commission to place the order, GLD would need to reach 135.75 just for you to breakeven (because you earn 1.00 per dollar movement). In my opinion, shares need to be purchased in increments of 100, or more, to make sense. This means you make, or lose, $100.00 per dollar movement. If you bought 100 shares of GLD, you would be paying $10,125.75, plus commission! You could purchase about 7 ounces of real gold for that price at its current spot price, $1,332.40. Again, regardless of how much you purchase, your (potential) ROI is always better in real gold, so why not hold gold??


Next, let’s look at silver. Silver’s current spot price is 14.77 and SLV’s price is 13.83.

You must question why your ROI in real silver is nearly 8% better than in SLV if you purchased silver in 2006! If you invested in 2006, the ROI in silver would be 8.00% and your ROI in SLV would be 0.17% . We can conclude that real metals outperform their ETF counterparts, and that a divergence between their trends is occurring. This is significant because it means that the price action of ETFs is consistently lower than their physical metal counterparts


Investing and/or collecting bullion assets is a statement or a reflection of who you are. For example, it is very common for investors who invest in index-based ETFs to describe themselves as conservative, or risk-averse.

Bullion investors are often seeking to preserve their wealth. Most bullion investors believe that the value of their holdings is a reflection of the purchasing power of their local currency. As a bullion investor, you have the opportunity to personalize each ounce you purchase by selecting a particular type or brand of bullion (subject to availability and rarity). Some investors prefer to buy Royal Canadian Mint Maple Leaf 1 ounce coins, while others prefer to purchase other premium bars, rounds, or other brand-name coins in larger volumes, like a 100 ounce bar. How you buy your bullion, and the type of bullion you choose is a reflection of who you are!

There isn’t much room to personalize a gold-backed ETF – you either own it, or you don’t. It may say something about your investment style, but you cannot do much more than that!


Simply stated, you have far more privacy with physical precious metals than you do with their paper counterparts. If you have physical possession of your bullion, you can hide it somewhere and no one needs to know you own it (unless you wish to disclose such information). With paper metals, the institution you bought them from is obligated to report your holdings, and it is difficult to take physical possession of the metals.  At Worldwide Precious Metals, as your private bullion dealer, we hold your account information strictly confidential and will never disclose your ownership.

RRSP, TFSA, LIRA, 401K Eligible

If this is not enough, you are also allowed to hold physical gold and silver within any of your registered Canadian or United States products.  At Worldwide we can help facilitate a transfer from any current ETF or other paper markets, to a registered precious metals account without you incurring a tax event. 


Based on my findings, physical metals are better to own than paper metals, like precious metals-backed ETFs. In recent years, physical precious metals offer a better ROI, give physical ownership, are not tied to any liabilities, protects a portfolio while reducing systemic risk, and they look great! You shouldn’t be asking if you should own physical metals or their ETF counterparts – Rather, you should be asking, do I want coins, or bars, and of which precious metal(s)?

Shawn Sklar, Broker and Contributor at Worldwide Precious Metals