Silver ETF and Gold ETF vs. Physical Gold and Silver – Which is Better?

Stefan Gleason Stefan Gleason

Stefan Gleason

July 18th, 2022 Comments

Are you considering investing in silver? If so, you may be wondering whether to buy physical silver or a silver ETF.

Silver ETFs are a type of investment that tracks the price of silver. They are traded on exchanges, so they can be bought and sold easily. Physical silver, on the other hand, is the actual metal itself. It can be stored in your home or a safety deposit box.

There are pros and cons to both options. Silver ETFs are more liquid than physical silver. However, they are not as secure due to counterparty risks and they may not track the price of silver closely. Physical silver is more tangible and can be used as a store of value. However, it can be more difficult to store and insure.

The best option for you will depend on your individual needs and preferences. If you are looking for an investment that is easy to buy and sell, and that is relatively secure, then a silver ETF may be a good option for you. However, if you are looking for an investment that is tangible and that you can use as a store of value, then physical silver may be a better option for you.

Ultimately, the decision of whether to invest in silver ETFs or physical silver is a personal one. There is no right or wrong answer. It is important to weigh the pros and cons of each option and to choose the one that is right for you.

Here are some additional factors to consider when making your decision:

  • Your investment goals: What are you hoping to achieve with your investment? Are you looking for a short-term investment or a long-term investment?
  • Your risk tolerance: How much risk are you comfortable with? Silver ETFs are generally considered to be a less risky investment than physical silver.
  • Your investment budget: How much money do you have to invest? Silver ETFs are typically less expensive than physical silver.
  • Your storage and insurance needs: If you choose to invest in physical silver, you will need to store it somewhere safe and insure it against theft or loss.

Once you have considered these factors, you can make an informed decision about whether to invest in silver ETFs or physical silver.

The decision to start investing in precious metals such as silver or gold is a necessary step toward protecting your wealth in these volatile times. But it still leaves some investment choices to make – chief among them being whether to own gold and silver directly in physical form or indirectly through derivative proxies for bullion such as exchange-traded funds (ETFs).

Exchange-Traded Funds, also known simply as ETFs, are open-end funds traded on an exchange much like stocks, but can encompass diversified investments including multiple assets, stocks, bonds, and/or commodities. Due to their diversification and frequently exchange-traded qualities, ETFs are considered more liquid than mutual funds. There are multiple types of ETF including, but not limited to, commodity ETFs such as ones back by precious metals like gold or silver, bond ETFs, stock ETFs, industry/sector ETFs, and currency ETFs. Additionally, ETFs are either actively or passively managed.

Although commodity ETFs are convenient for short-term investors and investing speculators who move in and out of the investment market, that isn't the primary concern of those who desire long-term wealth protection in precious metals. Holding physical assets of precious metals, which are types of metal commodities, acts as a hedge against inflation and as an insurance against failing markets or debasing currencies.

If you're building a hard-asset financial foundation, your primary concern is security. By that standard, ETFs are an inferior method of precious metals ownership.

Unfortunately, commodity ETFs are the preferred investment of brokers, financial planners, corporate-interest traders, and Wall Street commentators – the people who have been pushed (often kicking and screaming) into belatedly acknowledging the wisdom of investments related to precious metals. In fact, the same financial professionals who never understood or believed in gold philosophically are now advising the public on how to own it! From brokerage houses to glossy "money"magazines, along with social media and television celebrity investing gurus such as CNBC's market eye Jim Cramer, the financial industry is steering those who seek refuge in precious metals into fee-generating trading instruments for their own profit instead of direct physical ownership of assets.

Jim Cramer advised his people in 2011 that the $69 billion SPDR Gold ETF (GLD) is "the most convenient, least risky way to play the precious metal."Least risky? This coming from a man who touted the "safety"of Bear Stearns on the eve of its collapse!

A Metals-Backed IOU Is Still an IOU... that Could Default

The risks entailed in owning commodity ETFs derived from precious metals are much the same as those of other financial instruments – risks that precious metals investors presumably want protection from.

A key difference between gold vs. gold ETFs is the significant counterparty risks the ETFs introduce. Owners of a GLD – or iShares Silver ETF (SLV) – own shares of a trust that is supposed to be backed by the metal. Shareholders don't own title to the metal itself. On the other hand, when you own actual gold vs. GLD, you aren't effectively entrusting your wealth to HSBC, the mega-bank that serves as the primary custodian for the ETF's bullion.

Gold and Silver Types

The dangers of entrusting precious metals to financial intermediaries are illustrated by the MF Global collapse of late 2011. Investors who held warehouse receipts for gold and silver bars within MF Global company accounts had their assets frozen and pooled together with those of other customers of the failed firm. The liquidating trustee told them they'd eventually get back about 72 cents on the dollar; in other words, they'd lose 28% of their bullion- that’s a big price tag.

The gold and silver ETFs also use futures contracts to buy and sell metals into and out of the funds. There is the risk of delivery failure, just as there is a risk that some of the gold or silver bars owned by the fund are encumbered in some way. And finally, to the extent shares of these commodity ETFs are sold short, some silver experts such as Ted Butler have raised concerns that those shorted shares may not maintain their full metal backing.

Coins, Bars, and Rounds Aren't Subject to Wealth-Corroding ETF Fees

Holders of the largest gold and silver ETFs, GLD and SLV, lose .40% and .50%, respectively, to management fees every year. The fees and expenses aren't an unreasonable premium as compared to bullion storage services, but they may be an unnecessary cost. If you already have your own safe, vault, or secured home storage space for valuables, then it costs you nothing at the margin to add another gold bullion coin to the lot. You can hold onto that coin for years or decades, and it will track the spot price market 1:1 with no annual slippage. When you're ready to sell it, trade it, or pass it along to heirs, the one ounce of gold you originally purchased from companies such as Money Metals Exchange, which is a reputable online bullion dealer, will be that same full ounce.

Long-term holders of silver or gold ETFs will see their share values negatively diverge from the spot bullion prices. When GLD launched in late 2004, each share represented one-tenth of an ounce of gold. Seven years later, each share reflected a 3.1% reduction in the quantity of bullion represented by it, owing to the cumulative effects of fees.


SLV shares, meanwhile corresponded to 3.6% less silver in late 2011 than they did at the silver ETF's launch in 2006. Over the course of 30 years, SLV holders can expect to see a 15% reduction in the silver value of their shares – and that's assuming nothing goes wrong! For this reason, silver ETFs are a loss for return on investment.

Paper Wealth vs. Real Wealth

An accounting or auditing scandal, theft, or fraud of multi-billion-dollar proportions involving one or more bullion ETFs seems eventually probable. Some credible market watchdogs believe the major ETFs have already partially defaulted by backing some shares with derivatives and have cooked their books by engaging in hidden leases, swaps, and commingling.

Even if the commodity ETFs flawlessly deliver on their promise to obtain and securely hold pure physical bullion in proportion to all shares outstanding and competitive market prices, investors still would be stuck with nothing more than a stock symbol on their brokerage statement. It is nearly impossible for retail market investors to take delivery of the ounces of gold or silver they think they own through ETFs. If you can't see, touch, or hold the gold you think you own, then all you actually own is paper.

The bottom line is that gold and silver ETFs don't insulate you from the risks inherent in the financial system. There are no market substitutes for physical gold and silver bullion owned directly. On the question of whether to own physical gold vs. ETF shares, or physical silver vs. ETF shares, we strongly suggest you avoid ETFs.

Stefan Gleason

About the Author:

Stefan Gleason is CEO of Money Metals Exchange, the company recently named "Best Overall Online Precious Metals Dealer" by Investopedia. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC and in hundreds of publications such as the Wall Street Journal, TheStreet, and Seeking Alpha.