Gold escalated to the USD$3,000 mark for the first time on Friday, reaching a historic high as investors poured money into the metal as a safe haven amid economic uncertainty driven by trade wars, tariffs, and market instability.
Long-term gold investors have seen strong returns, with the SPDR Gold Shares ETF (NYSEARCA: GLD) outperforming the S&P 500 by climbing nearly 14 per cent year-to-date and over 37 per cent in the past year, extending a long-term trend.
Buying gold offers both advantages and drawbacks, particularly when considering physical gold versus proxies like ETFs or gold-backed stablecoins.
Physical gold provides direct ownership, making it a valuable hedge against inflation, currency devaluation, and economic instability. Unlike paper assets, it carries no counterparty risk, ensuring security during financial crises. The issues arise with storing and securing physical gold, which can be costly and inconvenient. Investors must account for storage fees, insurance, and potential liquidity issues. Selling physical gold often involves premiums and dealer markups, reducing overall returns.
For investors seeking security and long-term wealth preservation, physical gold remains a solid choice. However, for those prioritizing liquidity, lower costs, and ease of trading, gold ETFs or stablecoins are a more practical alternative.
Here are three alternatives to buying physical gold.
Spot gold ETFs
First, ETF stands for exchange-traded fund. It’s a financial product that tracks an index, commodity, or asset and trades like a stock on an exchange. ETFs offer diversification, liquidity, and lower costs than mutual funds. Gold ETFs also provide exposure to gold prices without requiring physical ownership.
They provide liquidity, allowing investors to buy and sell easily on exchanges. However, ETFs come with management fees and do not grant direct ownership of gold.
Several spot gold ETFs provide investors with these services.
SPDR Gold Shares, for example, is one of the largest and most liquid gold ETFs, directly tracking gold prices with bullion stored in vaults. Meanwhile, iShares Gold Trust (NYSEARCA: IAU) offers a lower expense ratio than GLD while still maintaining physical gold backing. Aberdeen Standard Physical Gold Shares ETF (NYSEARCA: SGOL) provides a cost-effective option with gold stored in Switzerland. This might appeal to investors seeking jurisdictional diversification.
GraniteShares Gold Trust (NYSEARCA: BAR) is another alternative with some of the lowest fees among gold ETFs. This could be an attractive choice for cost-conscious investors looking for exposure to physical gold.
Read more: Top Calibre Mining shareholder raises issues with the Equinox merger
Read more: Calibre Mining’s mineral resource estimate in Talavera gives reasons for optimism
Gold producer ETFs
Gold producer ETFs invest in companies engaged in gold mining, providing investors with indirect exposure to gold prices while offering potential growth from mining operations.
Unlike spot gold ETFs, which track physical gold prices, gold miner ETFs benefit from gold price fluctuations and operational efficiencies within mining companies.
These ETFs offer diversification by holding multiple mining stocks, reducing the risks associated with investing in a single company. They also provide liquidity and ease of trading compared to owning individual mining stocks. Additionally, some gold producer ETFs include exposure to mid-tier and junior miners. These typically trade off higher growth potential with increased volatility.
Investing in gold miner ETFs allows investors to capitalize on the potential for increased production, cost reductions, and exploration success. However, they carry additional risks, such as geopolitical instability, regulatory changes, and operational challenges that can impact mining profitability regardless of gold price trends.
Several gold producer ETFs offer diversified exposure to gold mining companies, each with a different focus. VanEck Gold Miners ETF (NYSEARCA: GDX) (NYSEARCA: GDXJ) is one of the most well-known gold miner ETFs.
It holds large-cap producers such as Newmont Corporation (TSE: NGT) (NYSE: NEM) (FRA: NMM), Barrick Gold Corp (TSX: ABX) (NYSE: GOLD), and Agnico Eagle Mines Ltd (NYSE: AEM) (TSE: AEM).
However, for those seeking smaller-cap and mid-tier miners, VanEck Junior Gold Miners ETF includes high-growth potential companies like B2Gold Corp(TSE: BTO) (NYSE: BTG) (FRA: 5BG), Calibre Mining Corp (TSE: CXB) (OTCMKTS: CXBMF), and Wesdome Gold Mines Ltd. (TSE: WDO) (OTCMKTS: WDOFF).
Another option is iShares MSCI Global Gold Miners ETF (NASDAQ: RING), which offers exposure to both North American and international miners, with holdings such as Franco-Nevada Corporation (TSE: FNV) (NYSE: FNV), Kinross Gold Corporation (TSE: K) (NYSE: KGC), and Gold Fields (NYSE: GFI) (JSE: GFI).
The advantages and disadvantages of stablecoins
A stablecoin is a type of cryptocurrency designed to maintain a stable value by being pegged to a reserve asset, such as a fiat currency (USD, EUR), a commodity (gold), or a basket of assets. Unlike traditional cryptocurrencies like Bitcoin, which can be highly volatile, stablecoins provide price stability, making them useful for transactions, remittances, and a hedge against inflation.
Stablecoins offer several advantages over ETFs.
They trade 24/7, unlike ETFs, which are limited to stock market hours. They also allow for fractional ownership without high transaction fees, making them more accessible for smaller investors. Furthermore, stablecoins can be used in decentralized finance (DeFi) applications, enabling staking, lending, and instant global transfers without intermediaries.
While ETFs offer traditional regulatory oversight and institutional backing, stablecoins provide greater liquidity, lower costs, and faster transaction speeds, making them an appealing alternative for investors seeking exposure to gold or other assets in a digital, flexible format.
They also come with a host of disadvantages. For example, counterparty risk is a major concern.
Stablecoins rely on the issuing entity to maintain reserves and uphold the peg, whereas ETFs are heavily regulated with audited asset holdings. Some stablecoins have faced transparency issues, with questions about whether they truly hold sufficient reserves to back their tokens. Tether, one of the world’s largest stablecoins by market cap, is one such culprit.
Regulatory uncertainty is another drawback. Governments and financial regulators don’t know what to do with them yet. Some governments are more accepting of these innovations than others. Sudden changes could impact their usability, liquidity, or even legality. ETFs, by contrast, operate within well-established regulatory frameworks.
Read more: Equinox Gold acquires Calibre Mining for $2.6B
Read more: Calibre Mining needs skilled crew for Valentine, prepares to host Newfoundland open house
Gold-backed stablecoins
Despite these disadvantages, gold-backed stablecoins represent a viable and potentially lucrative alternative to both ETFs and directly owning gold.
Gold-backed stablecoins combine digital convenience with asset backing, This option comes with blockchain-based ownership while maintaining gold’s intrinsic value. It also enables fractional ownership and seamless transactions.
However, while they offer flexibility, they still rely on the issuing entity’s credibility. Issuers store the gold in vaults, allowing investors to trade or hold gold in a digital format.
Several gold-backed stablecoins offer digital exposure to gold, combining the benefits of cryptocurrency with the stability of precious metal.
PAX Gold (PAXG), issued by Paxos, is backed by one fine troy ounce of gold stored in professional vaults.
Paxos, the issuer of PAXG, works with Withum, an independent auditing firm, to provide monthly attestations verifying that the gold reserves are held in custody and are fully backing the issued tokens.
Tether Gold (XAUT), issued by Tether, is similarly backed by one ounce of gold held in Swiss vaults. However, Tether has faced criticism for its lack of transparency regarding the reserves backing its stablecoin, with critics questioning whether it holds sufficient assets to back its USDT tokens. These issues extend to Tether Gold, which is also subject to concerns about Tether’s overall transparency and legal issues.
Furthermore, Singapore-based Digix Gold Tokens (DGX) represent one gram of gold stored in Singapore, providing fractionalized exposure to gold. These stablecoins allow investors to access the value of gold digitally while avoiding the challenges of storing and securing physical bullion.
The company has partnered with third-party auditors, Bureau Veritas, to ensure that the physical gold is properly stored and accounted for.
.
Calibre Mining is a sponsor of Mugglehead news coverage
.
