Physical Gold vs Paper Gold: Futures, ETFs and Certificates
Physical gold is metal you own, held for an IRA by a trustee. Paper gold is a financial product tied to gold, such as a fund share or a futures contract. They differ in what you own, who holds the metal, which costs apply and which risks you take. Neither is a recommendation.
"Gold" can mean a coin in a vault, a share in a fund, or a contract traded on an exchange. They all follow the gold market, but they are different things with different risks. This page explains the differences using regulator and exchange documents. It is part of our gold basics hub.
This page explains differences. It does not say which one to hold. That depends on your situation, so talk with a qualified financial adviser.
What is the difference between physical and paper gold?
Physical gold is metal: coins or bars. In an IRA, the metal must meet the tax rules and be held by a trustee or custodian. FINRA and the CFTC say that "Metals in an SDIRA must be held by the IRA trustee or custodian" (FINRA and CFTC). The IRS says bullion of a certain fineness qualifies for the exception "if a bank or approved non-bank trustee keeps physical possession of it" (IRS).
Paper gold is a loose term for financial products that track gold or hold it indirectly. FINRA and the CFTC describe them this way: "There are financial products such as commodity exchange-traded products (ETPs) or pools that offer exposure to metals prices," and they "come with their own fees and costs." The bulletin says you might be able to hold such products in an existing IRA.
We cover three forms below: gold funds, futures, and accounts or certificates. For the third, we did not open a primary source, so we say only what we can support.
How does a gold fund (ETF) work?
Take one example, to show how a fund describes itself. The abrdn Gold ETF Trust's annual report to the SEC says:
- "The assets of the Trust consist solely of gold bullion."
- "Each Share represents a fractional undivided beneficial interest in and ownership of the Trust."
- "The Custodian is responsible for the safekeeping of the Trust's gold."
- The Sponsor's fee "accrues daily at an annualized rate equal to 0.17%" of the trust's adjusted net asset value.
- "The Trust is not registered as an investment company under the Investment Company Act of 1940," and it "does not and will not hold or trade in commodities futures contracts."
These statements come from one trust's filing (SEC filing). Other funds have different structures, fees and terms, so read each prospectus. The same filing says shares "may only be redeemed by or through an Authorized Participant and only in Baskets." We did not check whether redemptions are made in metal or in cash.
The SEC's Investor.gov glossary describes exchange-traded commodity trusts as "structured to hold assets which consist primarily of commodities, currencies" (Investor.gov). It also warns that exchange-traded notes, a different product, "are complex, involve many risks for investors, and can result in the loss of the entire investment." Check what any product named for gold actually holds.
How do gold futures fit in?
The NYMEX gold chapter, published by CME Group, sets delivery standards: gold "shall assay to a minimum of 995 fineness," and deliverable gold is "Either one (1) 100 troy ounce bar, or three (3) one (1) kilo bars," in an exchange-approved brand (CME Group).
Futures matter for IRAs in an unexpected way. Section 408(m)(3)(B) of the tax code does not state its own purity number for IRA bullion. It refers to the minimum fineness that a contract market requires for metals deliverable against a regulated futures contract (26 U.S.C. 408(m)), which, in the NYMEX gold rule we reviewed, is the .995 above. Our guide to fineness and purity explains this. The exchange rule also shows that "paper" and "physical" are linked: a contract has terms for the metal that is delivered.
We did not review the exchange's margin or trading rules in this session, so we do not describe how futures are traded or what risks come with leverage.
Which is which? A side-by-side
| Physical coins and bars in an IRA | Gold fund shares (the trust example above) | Futures contracts | |
|---|---|---|---|
| What you hold | Metal held for the account | Shares, "a fractional undivided beneficial interest" in the trust | A contract with exchange-set terms |
| Who keeps the metal | A bank or approved trustee | The trust's custodian | Not covered here |
| Typical costs named in sources | Storage, insurance, administrative fees, dealer spreads (FINRA and CFTC) | Sponsor fee (0.17% in this one example) | Not covered here |
| Redemption or delivery | Metal is held for the account | Shares redeemed only by or through Authorized Participants, in baskets | Delivery standards set in the exchange rule |
| Key risk named in sources | Fraud, high spreads, collectible or semi-numismatic coins that FINRA and the CFTC say typically carry no additional value | Product structure varies; read the prospectus | Not covered here |
What costs and risks apply to physical gold?
FINRA and the CFTC list "storage, insurance, administrative fees" among costs of an IRA holding physical metal. They say dealer spreads can be large, that some fraudulent dealers have charged spreads above 300 percent, and that if the spread is too high, "as in most frauds, it's impossible for buyers to ever profit." They also say "Some fraudulent dealers have charged storage and insurance fees for metal that never existed." That is why verifying holdings matters. See our guides on dealer premiums, counterparty risk and verifying your metals.
The bulletin also says that once cash is in a self-directed IRA for physical metal, "you're on your own," because the fiduciaries and advisers who might guard against bad investments are not involved.
What are common mistakes?
- Assuming a fund share is the same as owning coins. The trust example says shares are interests in a trust.
- Assuming "gold" in a product's name means it holds bullion. Check what the product holds.
- Buying a "gold" product without reading how and where the metal is held.
- Skipping the fee comparison. Physical metal has dealer spreads and storage; a fund has a sponsor fee.
- Treating this page as a recommendation. It compares features and does not say which is better.
Related questions
What is the spot price? See our spot price guide.
How do gold and silver prices relate? See the gold-to-silver ratio guide.
This page is general information. A financial adviser can explain how a specific product is held and what it costs.
Sources
- Investor Bulletin: 10 Things to Ask Before Buying Physical Gold, Silver or Other Metals, FINRA and CFTC. Accessed Invalid Date.
- abrdn Gold ETF Trust, Form 10-K for fiscal year 2025, U.S. Securities and Exchange Commission (EDGAR). Accessed Invalid Date.
- Chapter 113, Gold Futures (NYMEX rulebook), CME Group. Accessed Invalid Date.
- Exchange-Traded Products (ETPs), Investor.gov, U.S. Securities and Exchange Commission. Accessed Invalid Date.
- 26 U.S.C. 408, Individual retirement accounts (subsection (m), collectibles), U.S. Government Publishing Office (govinfo). Accessed Invalid Date.
- Investments in collectibles in individually directed qualified plan accounts, Internal Revenue Service. Accessed Invalid Date.
This guide is general education, not personalized financial, tax or legal advice. See our financial disclaimer, editorial policy and advertising disclosure.