Editorial staff
The pitch for tokenized gold sounds compelling: own gold without the storage hassles, trade it 24/7, buy fractional amounts, and move your holdings instantly across borders.
Blockchain-based gold products have attracted billions in investment from people who want precious metals exposure without dealing with physical metal.
But the comparison between tokenized gold and actual bullion isn't as straightforward as marketing materials suggest. Each approach involves tradeoffs that matter differently depending on why you're buying gold in the first place.
What Is Tokenized Gold?
Tokenized gold is a digital asset where each token represents ownership of a specific amount of physical gold held in a vault somewhere. The token lives on a blockchain, typically Ethereum, and can be bought, sold, or transferred like any cryptocurrency. Major products include Paxos Gold (PAXG), Tether Gold (XAUT), and Perth Mint Gold Token (PMGT).
The underlying concept isn't new. Gold ETFs have offered paper claims on vaulted gold since 2004. Tokenization adds blockchain infrastructure to a similar model, enabling features like fractional ownership down to tiny amounts and peer-to-peer transfers without broker intermediaries.
Proponents argue tokenized gold combines the best of both worlds: gold's stability with crypto's convenience. Critics counter that it combines the risks of both worlds: gold's slow appreciation with crypto's technical vulnerabilities and counterparty dependencies.
The Case for Tokenized Gold
Tokenized products solve real problems for certain buyers.
Accessibility and fractional ownership. You can buy $50 worth of PAXG. Buying $50 worth of physical gold means paying premiums that destroy the economics. For small, regular purchases or dollar-cost averaging into gold, tokens work better mathematically.
Liquidity and trading hours. Tokenized gold trades continuously on crypto exchanges. Physical gold requires finding a buyer, agreeing on price, and arranging transfer. For traders who want to move quickly based on macroeconomic news, tokens offer speed that physical metal can't match.
Storage simplicity. Holding the token in a crypto wallet eliminates decisions about home safes, bank safe deposit boxes, or third-party depositories. There's no insurance to arrange, no transport logistics, no concern about theft from your residence.
Portability. Moving $1 million in physical gold across borders involves customs declarations, security concerns, and logistical complexity. Moving $1 million in tokenized gold requires a smartphone and an internet connection. For people in unstable jurisdictions or those who travel frequently, this matters.
The Case for Physical Gold
Physical gold ownership addresses concerns that tokenization cannot.
No counterparty risk. When you hold a Gold Eagle in your hand, its value doesn't depend on any company remaining solvent, any blockchain functioning, or any custodian honoring their obligations. The coin is the asset. This independence is precisely why many people buy gold: to own something outside the financial system entirely.
Proven 5,000-year track record. Physical gold has survived every financial crisis, currency collapse, and technological disruption in human history. Tokenized gold has existed for roughly five years. The infrastructure supporting it, including blockchain networks, token issuers, custody arrangements, and crypto exchanges, remains largely untested through severe stress scenarios.
Privacy considerations. Physical gold purchased from a precious metals dealer involves minimal documentation for transactions under reporting thresholds. Tokenized gold requires crypto exchange accounts with full KYC verification, and every transaction records permanently on a public blockchain. For buyers who value financial privacy, physical wins decisively.
No technical vulnerabilities. Physical gold cannot be hacked, suffer smart contract exploits, or become inaccessible due to lost private keys. The crypto industry has seen billions lost to exchange hacks, bridge exploits, and wallet compromises. Your gold bar doesn't care if you forget a password.
Tangible utility in crisis scenarios. In genuine societal disruptions, physical gold remains useful when digital infrastructure fails. This sounds dramatic until you consider that gold buyers often cite exactly these scenarios as motivation for their purchases. Tokenized gold assumes functioning internet, blockchain networks, and crypto exchanges, which is precisely what may not exist when you most need the gold.
Understanding the Custodial Reality
Here's what tokenized gold investors sometimes overlook: someone still has to store the physical gold backing your tokens. Paxos vaults its gold with Brink's in London. Tether Gold uses a Swiss vault. You're trusting these arrangements to survive corporate bankruptcies, regulatory actions, geopolitical conflicts, and fraud.
The token issuers publish audits and attestations, but audits have limits. They confirm gold existed at a specific moment. They don't guarantee you'll successfully redeem your tokens for metal if things go wrong. Redemption typically requires meeting minimum thresholds (often 400+ ounces) and completing processes that assume normal business operations.
Contrast this with gold coins in your safe deposit box. Redemption means opening the box and removing your property. No minimums, no processes, no corporate dependencies.
Cost Comparison
The cost structures differ in ways that favor different holding periods.
Tokenized gold costs:
- Trading spreads on crypto exchanges (0.1% to 1%)
- Network gas fees for transfers (variable, sometimes substantial on Ethereum)
- No ongoing storage fees for most major tokens (the issuer earns on the spread and float)
Physical gold costs:
- Dealer premiums over spot price (3% to 8% for bullion coins, higher for collectible gold coins)
- Storage costs if using a depository ($100 to $500+ annually depending on value)
- Insurance if storing at home
- Potential shipping costs
For short-term trading, tokenized gold's lower transaction costs win. For long-term holding measured in decades, physical gold's one-time premium and self-storage option often prove cheaper overall. The breakeven depends on holding period, storage choices, and trading frequency.
Regulatory and Tax Considerations
Tax treatment varies by jurisdiction and keeps evolving. In the United States, physical gold held over one year qualifies for collectibles capital gains rates (currently 28% maximum). Tokenized gold's classification remains murkier, potentially falling under either collectibles or standard crypto taxation depending on how regulators interpret the asset.
Regulatory risk also differs. Physical gold ownership has survived every regulatory environment in American history. Cryptocurrency regulation remains in flux, with potential for restrictions on trading, transfers, or even the tokens themselves. Several tokenized gold products have already shut down or restricted access to certain jurisdictions as regulations tightened.
What Experienced Investors Actually Do
Most sophisticated precious metals buyers working with established gold coin dealers don't view this as either/or. They recognize that physical and tokenized gold serve different functions.
Core holdings in physical metal provide insurance against systemic risks and counterparty failures. These are the coins and bars you buy hoping never to need, stored securely and held indefinitely.
Smaller tactical positions in tokenized products allow quick adjustments based on market conditions, easier rebalancing, and exposure without the logistics of handling metal. These serve portfolio management purposes rather than crisis insurance purposes.
The ratio between these allocations depends on individual circumstances: geographic stability, trust in institutions, liquidity needs, and fundamental reasons for owning gold. Someone in a stable country with high institutional trust might weight toward tokens for convenience. Someone seeking independence from the financial system entirely should weight heavily toward physical.
Questions to Ask Before Choosing
Before committing to either approach, honest answers to these questions clarify the right choice:
Why am I buying gold? If the answer involves distrust of financial institutions or preparation for crisis scenarios, physical makes more sense. If the answer is portfolio diversification with convenient rebalancing, tokens work fine.
What's my holding timeframe? Decades favor physical. Months to years with active management favor tokenized.
How technically sophisticated am I? Crypto custody requires understanding wallets, keys, and security practices. Getting this wrong means permanent loss. Physical gold requires only secure storage.
Do I trust the issuer and custodian? Research their financials, audit history, and redemption terms. If you can't evaluate these confidently, you're taking risks you don't fully understand.
Frequently Asked Questions
Is tokenized gold backed by real physical gold?
Major tokenized gold products claim 1:1 backing with physical gold held in professional vaults. Issuers publish attestations from auditing firms verifying gold holdings. However, verification requires trusting the audit process and the issuer's honesty. Unlike physical gold in your possession, you cannot independently confirm the backing exists.
Can I redeem tokenized gold for physical metal?
Most issuers offer redemption, but with significant restrictions. Minimum redemption amounts typically start at one London Good Delivery bar (approximately 400 troy ounces, worth over $900,000 at current prices). Smaller holders must sell tokens on exchanges rather than redeem for metal. Redemption also requires completing KYC processes and paying delivery fees.
What happens to tokenized gold if the issuer goes bankrupt?
This remains legally untested for most products. Token holders theoretically have claims on the backing gold, but bankruptcy proceedings could freeze assets for extended periods. Creditor priority, jurisdictional issues, and practical logistics create uncertainty. Physical gold holders face no equivalent risk since they already possess the asset.
Which has better returns, tokenized or physical gold?
Both track gold's spot price, so long-term returns should be similar before costs. Tokenized gold avoids dealer premiums but may incur trading fees. Physical gold, especially numismatic pieces, can carry premiums that either enhance or reduce returns depending on market conditions when selling. Neither consistently outperforms the other on pure price appreciation.
How do I store physical gold safely?
Options include home safes (convenient but carries theft risk), bank safe deposit boxes (secure but accessible only during bank hours), and private depositories (professional security with insurance, but involves ongoing fees and counterparty trust). Many investors use combinations: smaller amounts at home for accessibility, larger holdings in professional storage.
Is tokenized gold considered cryptocurrency for tax purposes?
Classification varies by jurisdiction and remains unsettled in many places. Consult a tax professional familiar with both precious metals and cryptocurrency taxation in your specific location. Record keeping requirements for tokenized gold typically mirror crypto requirements: detailed transaction logs with dates, amounts, and cost basis.
Editorial staff
