What is Paper Gold?

Paper gold refers to financial investment instruments that might not be in physical form but carry the value of gold. Yes, paper golds are traded in the financial markets of India, and most of them are specially designed to track the price of gold in real-time. Popular examples of paper gold include accounts for gold futures, pool accounts, and gold certificates. Read on to learn about everything about Paper Gold including what is paper gold, its types, the benefits derived from it, etc. 

Paper Gold Meaning

Paper gold means gold investments in a digital form, representing the price of gold without actual possession. Compared to physical gold, paper gold does not require physical storage. This feature of paper gold makes them easy to handle and cost-effective. Paper gold also offers higher liquidity because paper gold is traded on major financial markets. 

Physical Gold vs Paper Gold

The following table shows the differences between physical gold and paper gold:

Types of Paper Gold

Following are the types of paper gold. 

• Gold ETFs (Exchange-Traded Funds): Gold exchange-traded funds hold gold bullion or derivatives to track the real-time price of gold. They are referred to as investment funds and are traded on stock exchanges. Gold ETFs provide easy trading, liquidity, and direct exposure to gold prices.  
• Gold Mutual Funds: These are investment funds that mostly invest in companies dealing with gold mining or other gold-related assets. By investing in these mutual funds investors can diversify their portfolio. 
• Gold Futures Contract: Gold futures are contracts for the delivery of gold at a pre-set price at some date in the future. This is how investors hedge against movements in the price of gold. They are traded on commodity exchanges. 
• Sovereign Gold Bonds: The central bank issues the sovereign gold bonds denominated in gold grams. Investing in these bonds are safe because they are backed by the government and have fixed interest rates.

Benefits of Investing in Paper Gold Over Physical Gold

Now that you are aware of paper gold meaning let's understand the benefits of investing in paper gold over physical gold.

1. Liquidity and Easy Trading: Paper gold is very tradable in the financial market, and it relieves the hassle of keeping it in a safe place for investors. Physical gold requires extra caution in handling and also cannot be liquidated easily if it's in bulk amounts. 
2. Transaction Cost: Paper gold involves fewer transaction costs, and no extra costs are incurred for storage. Physical gold has higher transaction costs that include purchasing premiums, storage, and insurance. 
3. Management: Paper gold includes lesser management fees compared to the buying and maintenance costs of physical gold. Physical gold involves costs in handling, storage, and insurance of gold that add up over time.  
4. Tracking: One can easily track paper golds like ETFs and bonds through digital platforms but to track physical gold one has to regularly monitor the market which can sometimes be exhausting. 

Considerations and Associated Risks

There are certain key considerations and associated risks that one should be aware of while trading in paper gold. 

1. No Physical Asset: The paper gold doesn’t have tangible value like gold bars or coins. This feature of gold paper makes its worth rely heavily on factors like market demand, the credibility of the issuer, and overall economic conditions, introducing a level of risk not present with physical gold.
2. Exposure to Market Fluctuations: Like any other financial product, paper gold is influenced by undefined fluctuations. The price of physical gold is a factor influencing the value of paper gold by which the investor may gain or lose profits depending on the volatility of the paper gold market. 
3. Investment focus: Paper gold, in particular, is preferred mostly by traders to obtain quick profits from the short-term changes in the price of gold. This is due to its high liquidity and ease of trade. Thus, investors looking for long-term stability and real security through the physical possession of gold can make different choices for investment. 

Conclusion
Investing in paper gold provides modern and efficient alternatives to traditional physical gold investments. There are many advantages of investing in paper gold like flexibility and cost-effectiveness. However, it is essential to consider the associated risks, such as lack of physical backing, exposure to market fluctuations, and the suitability of investment focus. By using an online trading app, investors can easily manage their paper gold investments, track real-time prices, and make informed decisions based on current market conditions.