With inflation on the rise globally, more investors are looking to gold as a hedge. However, buying physical gold coins or bars can be expensive for the average investor. This is where fractional gold comes in – it allows investors to own physical gold in smaller quantities and lower price points. By splitting up gold into smaller pieces, fractional gold opens up gold ownership to those without thousands of dollars to allocate. But is it really a good investment compared to traditional forms of gold ownership?
Fractional gold provides affordable access to physical gold
The main benefit of fractional gold is its accessibility. Buying a 1 oz gold coin can cost over $1,800, putting it out of reach for many. With fractional gold, you can purchase as little as 1/20th of an ounce for less than $100. This allows smaller investors to allocate a portion of their portfolio to physical precious metals. While fractional gold may have higher premiums per ounce compared to larger pieces, the lower absolute dollar amount makes it more affordable.
You still reap most benefits of direct physical gold ownership
With fractional gold, investors still get most of the benefits of direct physical gold ownership. This includes having a tangible asset in your possession and avoiding counterparty risks associated with paper gold. Fractional gold can also be useful for barter and trade in extreme economic scenarios. The only benefit it does not provide is the same wealth portability of larger physical gold pieces.
Easy to accumulate and dollar cost average over time
The small size of fractional gold also makes it easy to accumulate gradual positions through dollar cost averaging. Rather than scraping together enough cash right away to buy a 1 oz coin, you can steadily build exposure over months and years by occasionally buying 1/10th or 1/20th oz pieces. This helps smooth out price volatility.
Drawbacks include higher premiums and less liquidity
On the downside, fractional gold tends to have higher premiums as a percentage of the total price. You are also sacrificing some liquidity compared to paper gold instruments, as fractional pieces may be less recognized among bullion dealers. And unlike owning whole ounces, you cannot as easily convert the gold back into cash using gold ATMs. But for most buy-and-hold investors, these are usually acceptable trade-offs for physical ownership.
In summary, fractional gold serves an important role in democratizing access to physical precious metals for average investors. While it does not provide quite the same benefits as owning whole ounces of coins or bars, it allows exposure to gold at much more affordable price points, making it useful for gradual accumulation.