Evaluation Framework for Physical Gold Investment Channels
In 2025, the spot gold price rose by about 70% for the full year, with the international gold price climbing from around USD 2,624 per ounce at the beginning of the year to a historic high of USD 4,381 per ounce in October. Amid such sharp price volatility, more investors have turned their attention to physical gold, a traditional safe-haven asset. However, buying and selling physical gold is not simply a matter of "buy and hold". From channel selection, purity certification and spread structures to storage arrangements, every stage involves hidden costs that can affect final returns. This article starts with gold purity standards and certification systems, analyzes the differences between banks and jewelry stores, and compares the institutional logic of physical gold and gold passbook products, helping investors build a systematic framework for evaluating purchase channels.
Gold Purity Standards and Certification Systems
From the Gold Standard to the LBMA: The Evolution of International Gold Purity Standards
Gold purity is the core parameter for measuring gold quality and is usually expressed in parts per thousand. Global gold market purity standards are formulated and supervised by theLBMA. The minimum purity requirement for LBMA Good Delivery gold bars is 995, meaning a gold content of 99.5%, with a weight of around 400 troy ounces, or about 12.4 kilograms. Gold bars in the retail investment market usually have higher purity, with the mainstream standard being 999.9, meaning 99.99% gold content and commonly known as, while some brands also produce 999, or 99.9%, gold bars.
In the mainland market, theSGEis the benchmark source for gold pricing. The Au99.99 and Au99.95 contracts provided by the SGE are the main references for domestic gold bar pricing. When buying gold bars, investors should confirm whether the purity mark meets the 999.9 standard and check whether the product comes with a testing certificate issued by an authoritative institution or original mint packaging.
"Gold is a form of insurance. You do not buy insurance because you think a disaster will happen, but to be protected if it does."
Banks and Jewelry Stores: The Institutional Logic Behind Channel Differences
Bank Channels: Institutional Protection and Spread Costs
Banks are the gold purchase channel with the most complete institutional safeguards. In mainland China, gold bars sold by banks are usually priced based on the SGE benchmark price, plus a service fee of about RMB 10 to RMB 30 per gram, with an overall premium of around 2%. The core advantages of banks lie in their high degree of standardization, traceable sources, and relatively regulated buyback mechanisms. Banks conduct physical quality inspections and reweigh the gold bars, then settle the buyback price after deducting a certain spread from the benchmark gold price.
However, the spread cost of bank channels cannot be ignored. The combined regular buy-sell spread is about RMB 2.4 to RMB 3 per gram. During periods of sharp gold price volatility, such as March 2026 when geopolitical tensions affected the market, some banks temporarily raised the spread to RMB 5 per gram. This means that after purchase, the gold price must rise enough to cover the spread before investors can break even.
Jewelry Store Channels: Price Flexibility and Reputation Risk
Jewelry stores offer a wider variety of products, including gold bars, gold blocks, and gold jewelry in different weights, and there may also be room for price negotiation. However, from a cost-structure perspective, the price of gold jewelry is much higher than that of investment gold bars. Gold jewelry is usually about 25% higher than the SGE benchmark gold price, including the base gold price, craftsmanship fees, and brand premium. More importantly, jewelry stores vary greatly in their recycling policies, especially when recycling gold jewelry, where a 5% to 10% deduction for wear or loss is often applied.
| Comparison Dimension | Bank Channel | Jewelry Store Channel |
|---|---|---|
| Purity Assurance | Standardized gold bars, 999.9 purity, with original certificates | Quality varies and requires independent testing and confirmation |
| Price Structure | Benchmark price + RMB 10 to RMB 30 per gram service fee, about 2% premium | Benchmark price + craftsmanship fee + brand premium, about 25% premium |
| Buy-Sell Spread | RMB 2.4 to RMB 3 per gram, reaching RMB 5 per gram during volatile periods | Smaller spread, but jewelry recycling may deduct 5% to 10% by weight |
| Buyback Convenience | Requires quality inspection and reweighing, with limits on buyback scope | Trade-in rules are complex and involve many fee categories |
Institutional Differences Between Physical Gold and Gold Passbooks
Comparison of the Legal Attributes of the Two Instruments
The essential difference between physical gold and gold passbooks, also known as paper gold, lies in the legal nature of the asset. Holders of physical gold own the physical asset itself and do not face counterparty risk. Even if a bank or broker fails, the value of the gold bar in the investor’s possession is not affected. Holders of gold passbooks, however, own a gold claim recorded on the bank’s books, and its value depends on the bank’s ability to fulfill its obligations.
In terms of trading convenience, gold passbooks allow buying and selling through a bank account, with the trading threshold as low as 1 gram, and their liquidity is far better than physical gold. However, gold passbooks cannot be directly exchanged for physical gold without paying additional processing fees. Since 2022, several banks have suspended new account openings for paper gold business due to regulatory requirements, so investors should confirm the latest bank policies before making a choice.
Differences in Cost Structure
The holding costs of physical gold include the premium paid at purchase, about 2%, storage costs such as bank safe-deposit box annual fees ranging from RMB 200 to RMB 3,000, and the buyback discount when selling. The main cost of a gold passbook is the buy-sell spread, with no storage fee. For investors with a shorter holding period, such as 1 to 3 years, the overall cost of a gold passbook is usually lower than that of physical gold. For investors with a longer holding period of more than 5 years, the one-time premium of physical gold is gradually amortized over time, and its comprehensive cost advantage becomes more visible.
Institutional Risks in Storage Arrangements
Legal Gray Areas of Bank Safe-Deposit Boxes
Bank safe-deposit boxes are widely regarded as a safe solution for storing gold, but their legal nature is often misunderstood. Legally, a bank safe-deposit box is considered rather than, meaning the bank does not assume custody responsibility for the items inside the box. If theft or another unexpected incident occurs, the bank’s compensation amount is usually capped at only tens of thousands of yuan, far from enough to cover the loss of high-value gold.
| Storage Option | Annual Cost | Security Level | Main Risk |
|---|---|---|---|
| Bank Safe-Deposit Box, Small | RMB 200 to RMB 500 per year | High physical security | No legal custody responsibility; low compensation cap |
| Bank Safe-Deposit Box, Large | RMB 1,000 to RMB 3,000 per year | High physical security | Same as above, and some branches require a 5- to 6-year waiting period |
| Home Safe | One-time cost from around RMB 2,700 | Depends on product grade | Theft risk; should be paired with property insurance |
Inheritance and Liquidity Risks
After the holder of a safe-deposit box passes away, the bank will immediately freeze the box. It can only be opened after all heirs are present and in coordination with tax authorities, and the process may last several months. In addition, the liquidity of physical gold is naturally lower than that of book-entry gold products. Selling requires carrying the physical gold to a buyback location, followed by quality inspection, reweighing, and other procedures, and settlement usually takes 1 to 3 business days.
Physical Gold Investment Channel FAQ
Why is there such a clear difference between gold prices at banks and jewelry stores?
The price difference mainly comes from different cost structures. The price structure of bank gold bars is the benchmark gold price plus a service fee, about 2%, and the product is highly standardized. The price structure of jewelry-store gold is the benchmark gold price plus craftsmanship fees and brand premium, totaling about 25%, with added value reflected in design and craftsmanship. From a pure investment perspective, bank gold bars are priced closer to international gold prices, while gold jewelry combines both wearing and consumption attributes. They serve different demand scenarios.
What is the difference between a gold passbook and an accumulated gold plan?
A gold passbook, or paper gold, is a book-entry gold trading tool. Investors buy and sell gold based on bank quotes without physical delivery, and most banks have suspended new account openings. Accumulated gold is a regular fixed-amount gold investment service launched by banks. Investors can automatically buy gold weekly or monthly, and after accumulating a certain amount, they may exchange it for physical gold bars. Accumulated gold is more suitable for long-term dollar-cost averaging investors, while paper gold is more suitable for short-term traders.
How can investors judge whether gold from a jewelry store is trustworthy?
It is advisable to evaluate the store from the following dimensions: operating history of at least five years, whether formal invoices and testing certificates are provided, whether third-party retesting is supported, and whether the gold bar carries a purity mark and serial number from a mint or refinery. Before purchase, investors can ask the store to test the purity on site using an X-ray fluorescence spectrometer and compare the result with the marked value. Gold priced significantly below the market benchmark should be treated with extra caution.
What are the differences between buying physical gold in Hong Kong and mainland China?
Hong Kong is one of the world’s major gold trading hubs, and the buy-sell spread for gold bars is usually narrower than in mainland China. Hong Kong exempts investment-grade gold with purity above 995 from value-added tax and sales tax. However, although Hong Kong gold prices may be slightly lower than mainland prices, with a price difference of about RMB 30 per gram, the arbitrage space is limited after including currency exchange costs of about 1% and transportation expenses. Buying gold in Hong Kong also requires compliance with customs declaration rules for precious metals entering and leaving both jurisdictions.
