Tokenized Gold: PAXG vs Physical Gold, What Do You Actually Own?

Tokenized gold, such as PAX Gold (PAXG) and Tether Gold (XAUt), promises gold exposure that you can buy, hold and send like a cryptocurrency. But a gold token is not a coin in your drawer. This article explains what you actually own when you hold one, what redemption for physical gold really involves, what it costs, and the risks that physical gold and gold ETFs do not share. It is educational content, not a recommendation to buy, sell or hold any token, fund or metal.

What is tokenized gold?

A tokenized gold product is a crypto token issued by a company that says it holds an equal amount of physical gold in a vault. Usually one token represents one fine troy ounce. The token lives on a blockchain, so it can be traded at any hour on crypto platforms and moved between wallets, while the gold itself stays in a vault run by the issuer and its custodians. Two of the best-known examples are PAX Gold (PAXG), issued by Paxos, and Tether Gold (XAUt), issued by TG Commodities Limited, a company connected to Tether.

What do you actually own?

Holding a token is not the same as holding metal. Depending on the issuer's terms, you hold a claim on gold kept by the issuer's custodians. Paxos says each PAXG token represents one fine troy ounce of a London Good Delivery bar stored in LBMA vaults in London, and that holders can look up the serial number and characteristics of their allocated gold by entering their wallet address in its lookup tool. Tether describes XAUt as backed by one fine troy ounce of LBMA Good Delivery gold held in Swiss vaults.

In both cases you are relying on the issuer to keep the gold, honour redemptions and operate within the law, and on the blockchain and the platform where you hold the token to work as expected. That is a different set of dependencies from a coin you keep yourself, and different again from a gold ETF.

PAXG and XAUt at a glance

The table summarises what the issuers and data providers published at the time of writing. Terms can change, so always check the issuer's current documents before acting.

Why most holders never redeem

A London Good Delivery bar weighs roughly 400 troy ounces, which is why both issuers set the physical-redemption minimum at about 430 tokens. At today's gold prices that is a very large sum, so for almost every small holder the practical exit is selling the token on a market, or back to the issuer for cash, rather than taking delivery. That does not make the token useless as a way to track the gold price, but it does mean it works more like a gold-linked digital asset than a route to metal in your hands.

What does it cost?

• Buying and selling: exchange fees, the gap between buy and sell prices, and any issuer creation or redemption fee.
• Moving tokens: blockchain network fees each time you send them, plus any withdrawal fee charged by an exchange.
• Price differences: tokens trade on markets, so their price can sit slightly above or below the gold spot price. See our guide to what the gold spot price is and why it changes.

For comparison, physical coins and bars carry dealer premiums and resale spreads, which we cover in how to buy physical gold safely. Gold ETFs charge an annual expense ratio; published figures for large US-listed funds include 0.10% for GLDM, 0.25% for IAU and 0.40% for GLD, though these can change.

The main risks

• Issuer and custody risk: you depend on the issuer and its vault operators. If they fail, are hacked or face legal problems, redemption could be delayed or disputed.
• Smart-contract and blockchain risk: a software flaw, a lost wallet key or a mistaken transfer can mean a permanent loss.
• Platform risk: if you hold the token on an exchange, you also depend on that exchange.
• Redemption friction: minimums, verification and delivery limits can make physical redemption impractical.
• Regulatory risk: rules for tokenized assets differ between countries and can change, and some products are not available everywhere.
• Price risk: the gold price itself can fall, and the token's market price can drift from it.
• Tax uncertainty: the treatment of gold tokens varies by country and is unsettled in many places. A qualified adviser can explain the rules where you live.

Tokenized gold compared with other ways to hold gold

Questions to ask before buying

1. Who issues the token, and which regulator, if any, supervises the issuer?
2. Where is the gold stored, and are bar lists or audit reports published?
3. What is the minimum for physical redemption, and who is allowed to redeem?
4. What are all the fees for buying, selling, withdrawing and moving the token?
5. Will I hold it on an exchange or in my own wallet, and what happens if that platform fails?
6. How does the token's market price compare with the gold spot price?
7. How is it taxed where I live?

Frequently asked questions

What do you actually own when you hold PAXG or XAUt? Holding a token is not the same as holding metal. Depending on the issuer's terms, you hold a claim on gold kept by the issuer's custodians. Paxos says each PAXG token represents one fine troy ounce of a London Good Delivery bar stored in LBMA vaults in London, and Tether describes XAUt as backed by one fine troy ounce of LBMA Good Delivery gold held in Swiss vaults. In both cases you are relying on the issuer to keep the gold, honour redemptions and operate within the law.

Why do most token holders never redeem for physical gold? A London Good Delivery bar weighs roughly 400 troy ounces, which is why both issuers set the physical-redemption minimum at about 430 tokens. At today's gold prices that is a very large sum, so for almost every small holder the practical exit is selling the token on a market, or back to the issuer for cash, rather than taking delivery.

What are the main risks of tokenized gold that physical gold does not share? Issuer and custody risk, because you depend on the issuer and its vault operators; smart-contract and blockchain risk, because a software flaw, a lost wallet key or a mistaken transfer can mean a permanent loss; platform risk, if you hold the token on an exchange; redemption friction from minimums, verification and delivery limits; regulatory risk, because rules differ between countries and can change; and tax uncertainty, because treatment varies by country and is unsettled in many places.

Bottom line

Tokenized gold makes gold easy to trade and divide, and it can be bought in small amounts at any hour. In exchange, you accept a chain of dependencies: the issuer, its custodians, the blockchain and the platform you use. Physical redemption exists on paper, but the whole-bar minimum means most holders will never use it. Whether that trade-off makes sense depends on your goals and risk tolerance, and it is worth reading the issuer's own terms rather than relying on exchange marketing.

A different route: allocated gold held in a vault

If what attracts you to tokenized gold is not having to store metal yourself, an older alternative is an online service where you buy allocated bars held in professional vaults. BullionVault is one example. According to its own website, it deals only in allocated metal, offers vaults in Zurich, London, New York, Toronto and Singapore, charges commission of up to 0.5% on live order-board trades (falling for larger orders) and charges 0.12% a year for gold storage and insurance. These are the provider's published figures at the time of writing and can change, and a vault service still carries platform, custody and counterparty risk. This is an example for comparison, not a recommendation. Affiliate disclosure: the first BullionVault link in this section is an affiliate link, so Sulivex may earn a commission if you open an account through it. You can read the provider's own explanation on its allocated gold page.