Advantages of physical gold over virtual ones

Free from financial uncertainties

If the previous point talks about individuals filing for bankruptcy, we talk about the bank itself. Yes, even the banks can be incompetent with their finances and file for bankruptcy. So many banks have gone bankrupt due to their poor financial decisions or during economic uncertainties, like the one in Malaysia in 1997 or during the sub-prime mortgage crisis in 2007-2008 (in the United States of America). So many banks were not sustainable until the Central Bank of Malaysia had to step in advising banks to merge to stabilise their books.

Global-scale issues

On a global scale, the subprime mortgage crisis in 2007 in the United States of America was another unforgettable event. The banks were over-leveraging their securities until, at one point, the housing ‘bubble’ burst. When the ‘bubble’ burst, financial institutions were left holding trillions of dollars worth of near-worthless investments consisting of subprime mortgages. Millions of American homeowners found themselves owing more on their mortgages than their homes were worth. Consequently, this has contributed to thousands of people losing their jobs, savings, and homes.

Coming back to virtual GIA, such gold deposits are not guaranteed if the institutions default. Our savings account is protected by insurance, that too to a certain extent. If the institutions default for some reason, our savings are nothing but numbers on their records (essentially worthless).

Physical gold that we own, on the other hand, is safe with us. No third party is involved in this safekeeping process (unless you pursue it), and in the event of any uncertainty that takes place, the gold would be there to our rescue.

Shariah-compliant gold savings program

The virtual Gold Investment Account has no physical gold most of the time. Their transactions are practically on paper (or screen in this case), making them non-Syariah compliant. The basic fundamental in gold saving is that when we buy/save gold, there must be physical gold supporting the transaction.

As of this writing, the gold savings facility that offers physical gold withdrawal are as follow:

• Kuwait Finance House
• Public Gold
• Bank Muamalat
• UOB Bank
• Public Bank

Last but not least, for those who save in gold savings accounts under banking institutions,  one thing we should note is the buyback requirement. They are usually very fussy when buying back the gold bars. Most of the time, they would want the gold bars to be in tip-top conditions, without any damages to the seal.

Some institutions even require us to disclose the serial number, and it must be the same as written in the purchase records (original receipts). In other words, if we purchase the gold from another person, then we cannot proceed to sell it at the banking institutions. So, checking the terms and conditions before buying is highly recommended.

In conclusion, these show the advantages of physical gold over virtual ones when considering long term savings

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Your buddy on gold investing,

Naresh G