What Is a Gold Certificate?

A gold certificate is a certificate which is held by someone in lieu of holding actual gold. Gold investors want to be able to invest in large volume, and handling and securing gold in that amount could quickly grow extremely cumbersome, for obvious reasons. As a result, many investors prefer to use gold certificates, leaving the bullion secured in a banking facility and buying and selling certificates instead.

Individual banks which keep stores of gold and sell to investors issue their own gold certificates. Once an investor has a gold certificate, she or he can sell it or trade it with another investor. This is usually done in large amounts through exchanges set up specifically for people who trade in gold. Entry into the gold market can be a costly endeavor, as new investors may learn to their surprise. The gold which corresponds with each gold certificate is kept in highly secured environments; one advantage to using gold certificates is the knowledge that the gold is highly unlikely to go anywhere, because banks take their vault security very seriously.

The value of gold is under constant fluctuation. Daily rates are usually quoted in financial publications and may be available from some banks. In addition, exchanges which deal in gold post the current rates so that people know which direction the market is moving in. Traders in gold can move their investments as needed to change their position as the market shifts and using a gold certificate to represent gold facilitates rapid trading.

People also refer to “gold certificates” in the form of historic certificates issued by the United States Government. Between 1863 and 1933, gold certificates redeemable for gold were issued. These certificates were used primarily by banks for interbank transfers, for much the same reason that investors use gold certificates today: to avoid the expense and hassle of handling large amounts of gold.


source: wisegeek.com