Paper Gold & Gold Passbook Scams

What if you thought you were saving gold, only to learn too late in this gold bull market, that you were merely saving counter-party risks with a bank?
If you have a passbook gold account, also known as paper gold, it is highly likely a risk filled exposure to the spot gold price is all you own.
Over the last few years, we have had the opportunity to speak to a myriad of gold investors in Asia, particularly when establishing our segregated gold vault options in Hong Kong and our upcoming Singapore location.
When speaking about gold investments with Asian investors, one has to always clarify the specific type of gold investment vehicle in question.
Throughout Asia, although gold investing is seemingly prevalent and a culturally accepted phenomenon, one must always ask the direct question...

Do you own paper gold OR physical gold ?!

You see in Asia, many large banks offer what are popularly referred to as paper gold accounts or passbook gold accounts.
Unlike outright physical gold bullion ownership, paper gold accounts and passbook gold accounts are anything but bullion.

What is "Paper Gold"?

The term paper gold means you have a piece of paper acting as a substitute for physical gold.
With paper gold, you don't own gold; in most cases you don't even own a promise to receive physical gold.
In plain english, it means you are a creditor of the party issuing the paper gold certificate or account, and thus subject to a myriad of counter-party risks and potential bankruptcy.

Examples of paper gold are gold certificates issued by banks and mints, passbook gold accounts, pool accounts, futures accounts and many of the well known ETFs or exchange-traded funds. 

Although paper gold accounts may give you short term price exposure to the gold spot price, if paper gold demand dries, it will become worthless since many of these vehicles give investors no right or abliity to redeem gold metal or bullion.

Unlike passbook gold or paper gold, physical gold bullion in hand cannot go bankrupt and has no dependency on any other entity(s) fullfilling promises made.