Paper Gold vs Physical Gold: ETFs, Certificates and Allocated Storage
You can own exposure to the gold price without ever holding metal. What you gain is convenience and cost. What you give up is possession.
Physical gold is metal you can hold. Paper gold is a claim on metal someone else holds, or on the gold price itself. Both give you exposure to the price. Only one gives you the metal.
Key takeaways
- ETFs and certificates track the gold price without you handling metal.
- They remove storage and insurance costs and add management fees and counterparty risk.
- Allocated storage means specific metal is yours. Unallocated means you are a creditor.
- Under CRA Income Tax Folio S3-F10-C1, a gold certificate can be a qualified investment for a registered plan if the underlying bullion meets the same conditions as coins or bars.
We do not sell bullion
Vanhess is a jewellery shop in Coquitlam, British Columbia. We sell solid gold jewellery. We do not sell, buy or broker bars, coins, ingots or wafers, and we are not a bullion dealer or a financial advisor. This page explains how bullion works so you can compare it fairly with jewellery. It is not a recommendation to buy anything.
The three ways to own gold exposure
| Physical metal | Allocated storage | ETF or certificate | |
|---|---|---|---|
| Do you hold it? | Yes | No, a custodian does | No |
| Is specific metal yours? | Yes | Yes, identified bars | Depends on the product |
| Storage cost | Safe or vault, paid by you | Storage fee | Built into the fee |
| Ongoing fee | Insurance only | Annual storage fee | Management expense ratio |
| Counterparty risk | None | The custodian | Issuer and custodian |
| Ease of selling | Find a dealer | Instruct the custodian | Sell like a share |
| Available in a crisis | Immediately, if it is with you | Only if the custodian is reachable | Only while markets are open |
Allocated against unallocated
This distinction matters more than most marketing admits. Allocated means specific, identified bars belong to you and are held on your behalf. Unallocated means you have a claim against the institution for a quantity of gold, and you rank as a creditor if that institution fails.
Be careful
If a product's documentation does not clearly say your holding is allocated and segregated, assume it is not, and understand that you are accepting the credit risk of the institution alongside the price risk of gold.
Certificates in a registered plan
CRA Income Tax Folio S3-F10-C1 confirms at paragraph 1.54 that a gold or silver certificate issued by the Royal Canadian Mint or a specified corporation is a qualified investment, provided the bullion it represents satisfies the same conditions that apply to qualifying coins or bars, and provided the certificate is bought from the issuer or from a specified corporation.
Frequently Asked Questions
Is a gold ETF as good as owning physical gold?
It gives you exposure to the gold price with far less friction and no storage problem, and for many people that is the practical choice. What it does not give you is metal in your possession, and it adds management fees and dependence on the issuer and custodian. Which matters more depends on why you want gold in the first place.
What is the difference between allocated and unallocated gold?
Allocated means specific identified bars are yours, held on your behalf. Unallocated means you hold a claim against the institution for a quantity of gold rather than particular metal, which makes you a creditor of that institution if it fails.
Can I hold a gold certificate in my TFSA?
CRA Income Tax Folio S3-F10-C1 states at paragraph 1.54 that a gold or silver certificate issued by the Royal Canadian Mint or a specified corporation is a qualified investment if the bullion it represents meets the conditions that apply to qualifying coins or bars, and the certificate is bought from the issuer or a specified corporation.