I Debated with AI! If Investing 3 Million Yen in Gold, Should You Choose “Physical” or “ETF”?

In the previous article, we covered “physical” gold and “ETFs” as methods for gold investment, and compared their respective merits and demerits.

So far, we have looked at the characteristics of physical gold and ETFs.

Now, if you were actually going to invest 3 million yen in gold, what would be the best way to do it?

This time, I actually debated it with an AI.

The theme is,

“If you invest 3 million yen in gold, should you put it all into ETFs, or should you hold some of it in physical form?”

I took the position of

“investing all 3 million yen in gold ETFs.”

On the other hand, the AI argued from the position of

“investing 2.5 million yen in gold ETFs and 500,000 yen in physical gold.”

AI’s Argument

AI:

Rather than putting all 3 million yen into ETFs, I recommend “2.5 million yen in ETFs + 500,000 yen in physical gold.”

The reason is that ETFs and physical gold have fundamentally different asset natures.

ETFs are financial products held through a securities company.

On the other hand, physical gold means you actually own the gold itself.

Therefore, even if some problem occurs with a securities company, exchange, or financial system, physical gold has the merit of being less likely to be directly affected.

If you keep only 500,000 yen of the 3 million yen in physical form, you can hold an asset in a different form than a financial product without significantly sacrificing investment efficiency.

My Counterargument

But what if the gold price itself crashes? As long as they are linked to the gold price, both physical gold and ETFs will basically drop in value.

It’s not like “it’s resistant to crashes because it’s physical.”

AI:

That is correct. I will correct that point.

If the gold price itself drops significantly, both physical gold and ETFs will basically be affected in the same way.

It is not the case that you can avoid price drops because it is physical.

Me:

Then, if you cannot avoid a drop in gold prices, what is the biggest merit of holding 500,000 yen in physical gold?

AI:

The biggest one is being able to hold the gold itself, disconnected from the financial system.

For example, if some problem occurs with a securities company, exchange, or payment system, it might become impossible to trade ETFs.

However, with physical gold, you can hold it without going through a securities account or exchange.

Therefore, in terms of preparing for an emergency, it makes sense to hold a certain amount in physical form.

Me:

I see.

Then, conversely, you mean that you are making 500,000 yen physical to prepare for the possibility of a problem occurring in the financial system.

AI:

Yes, that is a major point for the reason to hold 500,000 yen in physical form.

Me:

But even if the systems of exchanges or securities companies stop temporarily, that is basically a temporary problem, right?

Once restored, you can trade ETFs again.
In fact, there hasn’t been a long-term system outage in my memory.
In that case, is it necessary to make 500,000 yen physical just for that possibility?

AI: Certainly, that point becomes a weak reason for holding physical gold.

System failures and exchange suspensions are usually temporary.

Therefore, the idea of “making 500,000 yen physical just to prepare for the possibility that you might not be able to sell ETFs in an emergency” does not necessarily have a strong basis.

Me:

Exactly. Besides, ETFs have a major merit called NISA. If you hold a gold ETF eligible for the NISA growth investment quota, capital gains are generally tax-free.

On the other hand, NISA cannot be used for physical gold.

And it is subject to capital gains tax.

If 500,000 becomes 1.5 million and you sell it, you get a profit of 1 million.

This is taxed.
With NISA, it is tax-free.
Thinking about it that way, isn’t it more advantageous in terms of the tax system to put all 3 million yen into ETFs and use NISA?
Yes.

AI:

Yes.

If you can use NISA, this is a major merit of ETFs.

If you sell physical gold and make a profit, it is generally subject to taxation as capital gains.

On the other hand, for eligible gold ETFs held in a NISA account, capital gains are generally tax-free.

Therefore, considering long-term investment, ETFs that can use NISA have tax advantages.

Me:

In other words, if your goal is “I want to hold the gold itself,” then physical.

If your goal is “I want to aim for profits from rising gold prices,” then ETFs.

Thinking about it this way makes it easy to understand.

AI: That’s right.

And if the premise is “using 3 million yen for gold investment” like this time, the rationality of centering on ETFs increases when considering investment efficiency and NISA.

AI:

However, in terms of ease of liquidation, isn’t physical gold more advantageous?

With physical gold, even if you suddenly need cash, you can sometimes sell it on the spot and convert it to cash by taking it to a purchase shop.

On the other hand, ETFs must be sold on a stock exchange.

Moreover, just because a sell order is executed doesn’t mean cash enters your bank account that day.

For domestic ETFs, it usually takes about 2 business days from sale to settlement, and time is also needed to withdraw money from a securities account to a bank account.

In other words, isn’t physical gold superior in terms of liquidity in an emergency where you “need cash right now”?

Me:

That is certainly true.

In terms of converting to cash immediately in an emergency, physical gold is more advantageous.

ETFs have the merit of being easy to sell from a smartphone, but “being easy to place a sell order” and “being able to receive cash immediately” are different.

With physical gold, if conditions are met, such as within the business hours of a purchase shop, you can convert it to cash on the spot.

AI: Thinking about it that way, doesn’t 500,000 yen in physical gold also have the meaning of “holding assets that can be converted to cash immediately in case of an emergency”?

Me:

It certainly does. However, I have one question here. In the first place, if you need “assets that can be converted to cash immediately in an emergency,” shouldn’t you just hold cash or deposits instead of gold?

If the premise is to invest 3 million yen in gold, wouldn’t it be more rational to secure necessary living defense funds separately rather than preparing 500,000 yen in physical gold for emergencies?

AI:

Certainly, that way of thinking exists. If you think of physical gold as “emergency cash,” there is also the method of securing cash or deposits from the beginning. However, physical gold is not just cash; it has meaning in that you can hold the gold itself while being able to convert it to cash if necessary.

Me:

I see. Then, if you think of physical gold as an “asset for holding the gold itself,” you also need to consider the costs of storage and trading, right? Physical gold has costs for storage and trading.

If you store it at home, there is a risk of theft or loss.
If you use a safe deposit box, it costs money.

Even if you use a storage service from a precious metals company, some services charge storage fees.

And there may be fees based on weight when buying or selling physical gold.

On the other hand, ETFs also have costs like trust fees, but you don’t need to prepare a storage location yourself like with physical gold.

AI:

That is certainly a merit of ETFs. While physical gold has the merit of “holding the gold itself,” it also incurs “the time, effort, and costs of storage, trading, and management.” And the final question

Me:

Then, let’s organize what we’ve discussed so far.

You initially argued for “2.5 million yen in ETFs + 500,000 yen in physical gold.”

But we found out that: * If gold prices drop, both physical gold and ETFs are affected. * While there is the merit of preparing for the financial system, the necessity of making 500,000 yen physical just for that is not clear.

* NISA can only be used with ETFs.

* ETFs are easier to trade.

* Physical gold also has costs for storage and trading.

Do you still think 500,000 yen in physical gold is necessary?

AI:
Based on the discussion so far, I cannot go so far as to say that “you must hold 500,000 yen in physical form.”
Physical gold has the unique merit of being able to hold the gold itself, disconnected from the financial system.
However, whether it is necessary to allocate 500,000 yen to that merit depends on the person.

Especially under the current condition of “investing 3 million yen in gold,” there is sufficient rationality in the idea of centering on gold ETFs that can use NISA.

After the Debate

What was interesting about this debate was that at first, the AI argued for “2.5 million yen in ETFs + 500,000 yen in physical gold.” However, when we actually delved into the reasons one by one, we reached the conclusion that “it cannot be explained that you must hold 500,000 yen in physical form.” Of course, this does not mean that “physical gold is meaningless.”

There are people who find value in owning physical gold itself, and there is also the idea of wanting to hold assets in a form separate from the financial system.

However, the theme this time was “What to do if investing 3 million yen in gold?”

Even after finishing this debate, I did not change my idea of “investing all 3 million yen in gold ETFs.”

Especially if you can use NISA, ETFs have major merits in terms of the tax system.

In the end, it is not a matter of which is absolutely correct, physical gold or ETFs.

“Do you want to own the gold itself?” or “Do you want to invest in gold prices efficiently?”

Your choice will change depending on how you think about this.

Thank you for reading until the end.

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