The short answer
Physical gold is metal you own directly: coins or bars at home, or specific bars held for you in a vault. Paper gold is a financial claim whose value follows the gold price: an ETF share, a futures contract, an unallocated bank account or a CFD such as most retail XAUUSD trading.
Both track the same market, but they solve different problems. Physical gold is about ownership with no one in between, at a higher cost. Paper gold is about cheap, fast price exposure, with extra layers of counterparty and product risk. If you want to trade gold’s moves, paper forms are built for it. If you want to hold gold for years, the choice is between physical metal and low-cost, unleveraged paper like an ETF.
The main forms of gold, side by side
| Form | What you own | Typical costs | Main risks | Best suited to |
|---|---|---|---|---|
| Coins and small bars at home | The metal itself | Premium over spot, dealer spread when selling, safe storage | Theft, loss, selling hassle, fakes | Long-term holders who want no counterparty |
| Allocated vault storage | Specific, numbered bars held in your name | Premium, storage and insurance fees | Vault operator and legal structure, fees over time | Larger long-term holdings |
| Unallocated account | A claim on the provider for an amount of gold | Usually lower fees | Provider’s credit risk: you’re an unsecured creditor | Short-term or convenience holdings |
| Physically backed ETF | Shares in a fund that holds gold | Annual expense ratio, trading spread | Fund structure, custodian, tracking | Low-cost unleveraged exposure |
| Futures (e.g. COMEX GC) | A standardised contract to buy or sell 100 oz | Commission, margin, roll costs | Leverage, margin calls, contract expiry | Professional trading and hedging |
| CFDs / retail XAUUSD | A contract with your provider on the price difference | Spread, commission, daily swap | Leverage, provider risk, financing costs | Short-term speculation |
The glossary entry on paper vs physical gold gives the one-paragraph version if you need to explain this to someone quickly.
Physical gold in detail
Large bars: the wholesale market
The London market trades in Good Delivery bars. Under the LBMA’s rules, a gold Good Delivery bar contains roughly 350 to 430 troy ounces of gold, typically near 400, with a minimum fineness of 995.0 parts per thousand. Each bar carries a serial number, the refiner’s stamp and its fineness, and only refiners on the LBMA’s accredited list qualify.
At gold prices around $4,000 an ounce, a single 400-ounce bar is worth about $1.6 million. That’s why private investors usually buy smaller bars and coins, or own a slice of large bars through a vault or a fund.
Coins and small bars
Retail products range from 1-gram bars to kilo bars and bullion coins. Purity varies:
- Some popular bullion coins are 22 karat (about 91.67% gold, alloyed for durability), such as the American Gold Eagle, which still contains a full troy ounce of gold.
- Others are 24 karat at 99.99% fineness, such as the Canadian Gold Maple Leaf.
Our glossary explains karat, fineness and the troy ounce, and our gold price per gram guide shows how to convert the XAUUSD quote into grams, tola and kilos.
What physical gold really costs
The headline gold price is rarely what you pay. Physical buyers face:
- Premium over spot: the dealer’s margin plus manufacturing. Small items carry higher premiums per ounce than large bars. See coin premium.
- Making charges on jewellery, which can be large. See making charges.
- Taxes and duties, which vary by country, including import duty in some markets.
- Storage and insurance, whether a home safe or a vault fee.
- The sell-back spread: dealers buy back below spot.
Worked example: buying and selling one ounce (hypothetical)
All figures are hypothetical, to show the structure of costs rather than any dealer’s prices.
| Step | Amount |
|---|---|
| Spot gold price | $4,000 |
| Buy price for a 1 oz coin (4% premium) | $4,160 |
| Storage and insurance, 3 years at $15/year | $45 |
| Total cost | $4,205 |
| Sell-back price after 3 years if spot is still $4,000 (1% below spot) | $3,960 |
| Result if gold went nowhere | −$245 (about −5.8%) |
Gold has to rise roughly 6% over those three years just for this hypothetical buyer to break even. That isn’t a reason to avoid physical gold; it’s a reason to buy it with a long time horizon and to compare premiums carefully.
Paper gold in detail
Allocated vs unallocated accounts
This distinction matters more than most people realise.
- Allocated: specific bars are set aside and recorded as yours. If the provider fails, the bars should not form part of its assets, although you still depend on the legal structure and the vault operator.
- Unallocated: you hold a claim on the provider for a quantity of gold. It’s cheaper, but you are effectively an unsecured creditor. If the provider fails, you may get back less than you are owed.
Always read the terms to see which one you are buying, and who the custodian is.
Physically backed gold ETFs
A physically backed ETF issues shares and holds gold bars in vaults to match them, publishing its holdings. It is one of the cheapest ways to hold gold without leverage. You pay an annual expense ratio and a trading spread, and you own fund shares, not bars.
ETFs have become a major part of the gold market. According to the World Gold Council, global gold ETF holdings reached a record of about 4,256 tonnes at the end of September 2026. ETF flows can also swing with sentiment: BullionVault reported on 26 October 2026 that holdings of the largest US gold ETF fell 1.64% to 1,041.65 tonnes in the week to 20 October, its biggest weekly outflow since early March.
Two checks before buying any gold fund:
- Does it hold metal, or does it use futures or swaps? Futures-based funds can track spot gold less closely because of roll costs.
- Where is the gold held, who is the custodian, and are bar lists published?
The glossary covers gold ETFs in more detail.
Futures
A COMEX gold futures contract covers 100 troy ounces and is traded on margin. Futures can be settled by delivery, but most positions are closed or rolled before expiry. They are a professional tool with standardised rules and central clearing, but leverage cuts both ways. Our comparison of gold futures and CFDs and our guide to spot gold vs gold futures explain the mechanics and why futures and spot prices differ.
CFDs and retail XAUUSD
Most retail XAUUSD trading uses contracts for difference. You agree with your provider to exchange the difference in price between opening and closing. You never own metal, can go long or short with the same ease, and use leverage. Positions held overnight usually pay or receive a daily swap, which makes CFDs expensive for long holding periods. Read what a gold CFD is and our guide to XAUUSD spreads, commissions and swaps before you trade one.
CFDs and futures are leveraged. A small move against you can wipe out a large part of your deposit, and losses can happen very quickly around news. They are trading tools, not a way to save in gold.
Counterparty risk: who do you depend on?
A simple way to compare forms of gold is to ask: if something goes wrong, who do I rely on?
| Form | Who you depend on |
|---|---|
| Coins or bars in your possession | Yourself (security, authenticity) |
| Allocated vault storage | Vault operator and the legal title arrangements |
| Physically backed ETF | Fund issuer, custodian, trustee and the exchange |
| Futures | Your broker and the exchange’s clearing house |
| Unallocated account | The provider’s solvency |
| CFD | Your provider’s solvency and conduct |
None of these is risk-free. Physical metal at home swaps financial risk for theft and storage risk. The point is to know which risk you are taking, and to make sure any provider you use is properly regulated where you live.
The “paper gold” debate
You may read claims that there are many paper claims for every ounce of physical gold, or that paper markets “suppress” the price. These figures vary widely depending on what is counted (futures open interest, unallocated balances, derivatives), and many are difficult to verify. What is clear is that much of gold’s day-to-day price discovery happens in the London over-the-counter market and on futures exchanges, while physical demand from jewellery, investors and central banks shapes the longer-term balance.
For a trader, the practical takeaway is modest: the XAUUSD price you see is linked to these wholesale and futures markets, so what moves them moves your chart.
Which form of gold fits your goal?
| Your goal | Forms that usually fit | Forms that usually don’t |
|---|---|---|
| Hold gold for 10+ years with no institution in between | Coins or bars, allocated storage | CFDs, short-dated futures |
| Low-cost long-term exposure in a brokerage or retirement account | Physically backed ETF | CFDs (swap costs build up) |
| Trade intraday or swing moves in either direction | XAUUSD CFDs, futures | Coins and bars (spreads too wide) |
| Hedge a business’s gold price risk | Futures, options, forwards | Jewellery, small coins |
| Gift or cultural use | Coins, small bars, jewellery | Any paper form |
Many people use more than one: physical or ETF holdings for the long term, and a small, separate trading account with strict risk rules for short-term XAUUSD trades. If you’re starting on the trading side, our gold trading starter kit and the position size calculator are the best first steps.
A short checklist before you buy any gold
- What exactly do I own? Metal, fund shares, a claim, or a contract?
- What are all the costs? Premium, spread, fees, swap or roll, taxes, and the cost to sell.
- Who holds it, and who is responsible if they fail?
- Is there leverage? If yes, how much can I lose and how fast?
- How easily can I sell, and at what price relative to spot?
- Does the time horizon match the product? Short-term tools for trading, low-cost unleveraged forms for holding.
Key takeaways
- Physical gold means owning metal; paper gold means owning a claim or contract linked to the price.
- Wholesale Good Delivery bars hold about 350–430 oz at 995.0 minimum fineness; retail buyers pay premiums and sell-back spreads.
- Allocated storage gives title to specific bars; unallocated makes you a creditor.
- ETFs are low-cost and unleveraged; futures and CFDs are leveraged trading tools.
- Match the form to your goal, and always know who you depend on.
Sources
- LBMA: Good Delivery rules, technical specifications for gold bars
- LBMA: about Good Delivery and refiner accreditation
- Wikipedia: American Gold Eagle (22 karat composition)
- Wikipedia: Canadian Gold Maple Leaf (99.99% fineness)
- World Gold Council: gold ETF holdings and flows, October 2026 update
- BullionVault: gold reclaims $4,000 (26 Oct 2026), ETF holdings data
- CME Group: gold futures and options fact card
Educational content only, not financial advice. Trading gold with leverage carries a high risk of loss.
Frequently asked questions
What is the difference between physical gold and paper gold?
Physical gold is metal you own outright, such as bars or coins at home or in a vault held in your name. Paper gold is a financial claim linked to the gold price, such as an ETF share, a futures contract, an unallocated account or a CFD. Paper gold is cheaper and easier to trade but adds counterparty and structural risks.
Is XAUUSD physical gold?
No. Trading XAUUSD with a retail provider is almost always a contract for difference or similar derivative. You gain or lose on the price movement, but you never own or receive any metal. It is a trading instrument, not a way to hold gold.
Are gold ETFs backed by real gold?
Physically backed gold ETFs hold metal in vaults to match the shares they issue, and publish their holdings. You own shares in the fund, not specific bars, and you pay an annual management fee. Some other gold-linked funds use futures or swaps instead, so check how a fund gets its exposure.
What is a Good Delivery gold bar?
It is the large bar used in the London wholesale market. Under LBMA rules it contains roughly 350 to 430 troy ounces of gold, usually close to 400, with a minimum fineness of 995.0 parts per thousand, and it must come from an accredited refiner.
Which is better for long-term saving, physical gold or an ETF?
It depends on your priorities. Physical gold removes reliance on financial institutions but costs more to buy, store, insure and sell. An ETF is cheap and easy to trade but depends on the fund structure and custodian. Many savers use a mix. Leveraged products like CFDs are generally unsuited to long-term holding because of daily financing costs.