## Why Not to Invest in Paper Gold
Gold has been a popular investment for centuries, but it’s important to be aware of the risks involved before you invest in it. One of the riskiest ways to invest in gold is through paper gold, which is a derivative that tracks the price of gold but does not actually involve owning any physical gold.
There are several reasons why you should avoid investing in paper gold.
### 1. You don’t own any physical gold.
When you buy paper gold, you are not actually buying any physical gold. Instead, you are buying a contract that gives you the right to buy or sell a certain amount of gold at a set price on a future date. This means that you are exposed to the risk of the gold market, but you do not have any of the benefits of owning physical gold.
### 2. Paper gold is a derivative.
Derivatives are complex financial instruments that can be difficult to understand. If you are unfamiliar with derivatives, you should not invest in paper gold.
### 3. Paper gold is not as liquid as physical gold.
Physical gold is a very liquid asset, which means that it can be easily bought and sold. Paper gold is not as liquid, which means that you may have difficulty selling it if you need to raise cash quickly.
### 4. Paper gold is subject to counterparty risk.
When you buy paper gold, you are entering into a contract with a counterparty, which is the other party to the contract. If your counterparty defaults on the contract, you may lose your investment.
### 5. Paper gold is taxed differently than physical gold.
In the United States, physical gold is taxed at a lower rate than paper gold. This means that you could end up paying more taxes if you invest in paper gold.
### 6. Paper gold is not as safe as physical gold.
Physical gold is a hard asset that can be stored in a safe place. Paper gold is a digital asset that can be hacked or stolen.
### What are the alternatives to paper gold?
If you want to invest in gold without the risks associated with paper gold, there are several other options available to you.
* **Physical gold:** You can buy physical gold in the form of coins, bars, or jewelry. Physical gold is the most secure way to invest in gold, but it can be more expensive than other options.
* **Gold ETFs:** Gold ETFs are exchange-traded funds that track the price of gold. Gold ETFs are more liquid than physical gold, but they are also subject to counterparty risk.
* **Gold mining stocks:** Gold mining stocks are stocks of companies that mine gold. Gold mining stocks can be a good way to invest in gold, but they are also subject to the risks of the stock market.
## Conclusion
Paper gold is a risky investment that is not suitable for everyone. If you are considering investing in gold, you should be aware of the risks involved and consider the alternatives before you make a decision.