Buying digital gold or physical gold: what is the difference?

Buying digital gold does not automatically mean you will receive a named gold bar or coin. Depending on the product you buy allocated gold held in a vault, an exchange-traded instrument, a claim on a provider or a digital token. With physical gold you own the metal itself.

The difference between digital gold and physical gold is therefore not the gold price, which is the same for both, but what you legally own, who stores the gold and what happens on sale, delivery or the provider's bankruptcy.

In this article you will read which forms of digital gold exist, how they compare to physical gold and which questions you should ask before you invest.

What is digital gold?

Digital gold is an umbrella term for products that give you an online right to gold or exposure to the gold price. The app, the platform or the blockchain is only the access method; the underlying legal structure determines what you actually own. There are four main types.

Note: Bitcoin is often called "digital gold" because of its limited issuance, but it is not backed by gold and has no link to the gold price. Bitcoin therefore falls outside the definition in this article.

1. Digitally managed allocated gold

In this form physical gold is stored for you in a professional vault while you manage it online. Important here is the type of allocation: with individual allocation specific bars are assigned to you (often with a bars list), with pool allocation you are co-owner of a larger stock.

The LBMA makes the same distinction between allocated gold (specific bars) and unallocated gold, where you only have a general claim on metal. Always check whether the gold is legally segregated from the provider's assets; a user-friendly app by itself does not prove that you are the owner.

2. A gold ETF or gold ETC

With a gold ETF you buy through your broker an exchange-traded instrument that tracks the gold price. Many products called "gold ETFs" are legally an ETC (Exchange Traded Commodity): a debt instrument that can be physically backed, but remains a security with its own terms and counterparties.

Your rights are set out in the prospectus and the key information document (KID); physical delivery is almost never possible for retail investors. How these products work exactly can be read in our article about the gold ETF.

3. A gold token on the blockchain

Gold tokens such as PAX Gold (PAXG) and Tether Gold (XAUt) are crypto-assets where the issuer states that each token represents an amount of physical gold. For tokens check the whitepaper, the custodian, the independent reserve audits and whether exchange for physical gold is possible. Often a high minimum weight applies.

Within the EU the MiCAR regulation may apply to the token, the issuer or the crypto service provider involved.

4. A gold account or gold certificate

A gold account or certificate represents a right to stored gold, but is not always linked to specific bars. With an unallocated account you typically only have a general claim on the provider, and in case of bankruptcy you are an unsecured creditor.

Therefore always ask whether the account is allocated or unallocated and what happens to your claim if the provider can no longer meet its obligations.

What is physical gold?

Physical gold is tangible precious metal that you own yourself, in the form of gold bars or gold bullion coins from producers on the LBMA Good Delivery List, with a purity of up to 99.99%. You keep it at home in a safe or have it professionally and insured in storage.

The defining difference from any digital form: with self-custody there is no party between you and your gold.

The main differences at a glance

Does digital gold always track the gold price exactly?

No, digital gold does not always track the gold price one-to-one. Its value, in addition to the gold price, is influenced by the bid-ask spread, management fees, currency movements and the platform's pricing, which can cause the product's return to differ from the underlying gold price.

With physical gold you pay a premium above the metal value and receive a bid price when selling. Therefore, do not compare a product only with the current gold price, but with all costs between purchase and sale.

What does digital gold cost?

The costs of digital gold are not automatically lower than those of physical gold; they are just located in different places. A practical rule of thumb:

• Total costs = purchase spread + transaction or broker fees + annual management or storage fees + currency costs + any delivery costs + selling spread

For tokens, blockchain fees are added; for exchange products, an annual product fee. Physical gold mainly has one-off costs (premium) and, for professional storage, an annual custody fee; with self-custody there are no ongoing costs after purchase.

The fairest comparison: calculate how much you will net receive if you sell the product after one year, then the less visible costs will also become apparent.

Digital gold is an umbrella term: it can be allocated gold, a gold ETF or gold ETC, a gold account, or a gold token.

Is digital gold safe?

Digital gold is not automatically safe or unsafe; safety depends on the ownership model, the provider, the custodian and the technology. Professional custody protects against physical theft but introduces dependence on contracts, systems and the solvency of third parties. That is precisely the type of risk many gold buyers want to avoid.

Physical gold held privately has no platform risk, but it does carry the risk of theft, loss or underinsurance; this is manageable with a solid safe or insured external storage, for example via Edelmetaal Beheer Nederland (EBN).

Checklist: ask these questions before you buy digital gold

• What am I legally buying: gold, co-ownership, a security, a claim or a token?
• Is the gold individually allocated, pooled-allocated or unallocated?
• Who is the legal owner of the underlying gold?
• Where is the gold stored and who is the custodian?
• Is there a current bar list or independent stock verification?
• Is the gold segregated from the provider's assets?
• What happens in the event of the provider's or custodian's bankruptcy?
• Can I request physical delivery, and under what conditions?
• What total costs apply on purchase, holding, sale and delivery?
• Under which supervision or license does the provider operate, and for which specific activity?

A license or registration limits certain risks, but does not prevent price losses and does not automatically make a product suitable.

Tax: VAT and Box 3

Physical investment gold is exempt from VAT in the Netherlands and the EU, provided it meets the legal criteria (bars with a purity of at least 995/1000; additional conditions apply to coins). The Dutch Tax Authority also considers certain rights on investment gold and trading via gold accounts to fall under this exemption, but that does not mean every digital construct automatically receives the same treatment.

For income tax, both digital and physical gold count as assets in Box 3, valued at the reference date of 1 January. Gold investment coins are treated as "other assets", not as cash. How to determine the value of physical gold for your tax return is explained in our article on the annual reference value of investment gold.

Buy digital gold: ordering physical gold online is a different matter

When people search for "buy gold digitally" they sometimes mean something quite different from investing in digital gold: simply ordering physical gold via the internet. Of course that is possible: you order your bars or coins online and receive tangible gold, delivered insured to your home via our personal delivery service or placed directly in insured storage.

The purchase process is digital; the ownership is physical. See our buy physical gold range to discover which form of physical gold best suits your needs.

What suits you?

The right form depends on your goal and your need for control. If you mainly want to follow the gold price briefly and flexibly via an existing investment account, an exchange-traded gold product can be practical—provided you understand the prospectus, the costs and the legal structure.

If direct, tangible ownership is central and you buy gold as long-term protection for your wealth, physical gold is generally a better fit: no counterparty risk when held personally, VAT exemption and full control.

Conclusion: digital gold versus physical gold

Digital gold and physical gold follow the same gold price, but differ in what you actually own. Digital gold offers convenience and quick tradability, in exchange for ongoing costs and with a counterparty between you and the gold. Physical gold offers direct ownership, VAT exemption and independence from platforms and issuers.

With any digital form, first check the legal ownership, the backing and the delivery rights. Bear in mind that buying physical gold can be as digital as you like today, with tangible ownership as the result.