Ultimately, the value of gold is based on its tangibility. So, why do so many investors assume they’re getting the same protection from investments like gold futures that they’re getting from physical gold: while gold futures and ETFs will fill most of the needs of owning gold in normal circumstances, in extraordinary circumstances, something that’s intangible like a futures contract just won’t do. Because how will you collect your gold from the custody bank when all the banks have failed?

This week, the Goldnomics podcast ranks the safest ways to own gold to the least safe. The safest is, of course, owning physical gold bars. The next safest is to own allocated and segregated gold, which is owning physical gold kept in a separate physical account. The next level of safety is unallocated gold, then there are physically backed-ETFs and non-physically backed ETFs.

Further out the safety spectrum is owning shares of gold miners, which trade like equities (because they are). However, the vast majority of investors own gold via an ETF.

While it’s an easily accessible way of owning gold, it’s not designed for physical deliverability. “The idea of having gold in a systemically linked instrument like that could be convenient in normal times but when things get out of hand, suddenly those contracts don’t bear any weight.”

Like Alan Greenspan said, Gold is trusted by everybody as a form of payment. And indeed, most gold investors own the precious metal for its tangibility. And reading the fine print of these ETFs, the fund manager is protected from ever having to be found liable for delivering its gold. Instead, the gold is stored with large custodian banks, and if there’s ever any serious systemic risk, the owner of the ETF won’t ever be made hole.

“Don’t think you’re checking that hedging box if you own gold through an ETF, or a digital gold provider.”

Listen to the rest of the podcast below: