Physical gold and a gold ETF follow the same price, but in Slovenia they differ most in tax. As a private individual you can sell physical investment gold at a profit and pay nothing, while a gold ETF costs you 25% of the gain in the first five years. On the other hand an ETF is cheaper for small amounts, sells with one click and needs no safe place. Which is better for you depends on the amount, how long you will hold the gold and whether you want the metal in your hands.
What you actually buy
Physical investment gold means standard bars and coins that are exempt from VAT. Bars must be at least 99.5% pure, coins at least 90%. The metal is your property. You can keep it at home, in a bank safe deposit box or in storage with a dealer.
A gold ETF is in fact usually an ETC (exchange traded commodity). EU rules do not let UCITS funds invest in a single commodity, so gold products on European exchanges are debt securities backed by gold in a custodian’s vault. The best known are iShares Physical Gold, Invesco Physical Gold and WisdomTree Core Physical Gold. You buy them through a brokerage account, just like a share.
The key difference is ownership. With physical gold you own metal. With an ETC you hold a claim on the issuer, covered by the gold behind it.
Side by side
| Physical gold | Gold ETF / ETC | |
|---|---|---|
| VAT on purchase | 0% | no VAT |
| Tax on the gain (individual) | 0% | 25%, after 5 years 20%, after 10 years 15%, after 15 years 0% |
| Premium on purchase | from under 1% to 15%, depending on size | almost none |
| Annual costs | storage, from nothing to about 0.5% | roughly 0.1 to 0.4% (TER) |
| Selling | to a dealer, within hours or days | on the exchange at once, cash in two business days |
| Counterparty risk | almost none | issuer, custodian, broker |
| Smallest purchase | the price of one gram plus premium | the price of one unit |
| Tax return | not needed | after every sale |
Tax: the biggest difference
With physical investment gold a private individual pays no VAT on purchase and no income tax on sale. The Slovenian Personal Income Tax Act taxes capital gains only on securities, company shares and fund units, and gold is movable property. You do not have to report the sale to FURS. The only exception is buying and selling within a business (sole proprietor or company).
A gold ETC is a security, so the gain is taxed like shares and ETFs. The rate falls the longer you hold:
| Holding period | Tax on the gain |
|---|---|
| up to 5 years | 25% |
| over 5 to 10 years | 20% |
| over 10 to 15 years | 15% |
| over 15 years | 0% |
Example: Nina buys a gold ETC for €10,000 and sells it four years later for €15,000. The gain is €5,000. Standard deemed costs (1% of the purchase and 1% of the sale value) are deducted, so the tax base is €4,750 and the tax about €1,190. Had Nina bought physical gold and sold it at the same price, she would keep the whole gain, reduced only by the premium and the dealer’s buy-back spread.
With an ETC you must report the sale in the capital gains tax return (Doh-KDVP) by 28 February of the following year, since a foreign broker does not withhold the tax for you. Details are in the article on how ETFs are taxed. It also covers the individual investment account (INR), with a flat 15% rate and 0% after 15 years without withdrawals. Check with the provider whether a gold ETC can be held in an INR.
Tax rates are set by law and can change. Before a large decision, check what applies at that moment.
Costs: where the money goes
With physical gold the main cost is the premium, the difference between the market price and what you pay the dealer. On a 1 gram bar it can be 10 to 15%, on an ounce (31.1 g) or 100 g about 1 to 3%, on a kilogram under 1%. When you sell you get the buy-back price, slightly below the market. The gold therefore has to rise first before you break even. How to pick the size and the dealer is covered in the article on buying investment gold.
Storage comes on top. At home it costs nothing but carries a higher risk of theft, a bank safe deposit box costs tens to a few hundred euros a year, and dealer storage is usually a percentage of the value.
With an ETC you pay an annual management fee (TER), roughly 0.1 to 0.4%, plus broker commission when you buy and sell. There is almost no premium.
For small amounts and regular monthly investing an ETC is almost always cheaper, because with physical gold you would buy small pieces with a high premium. For larger amounts held for a long time, physical gold often comes out ahead thanks to the tax, provided you buy large enough pieces. Monthly physical gold savings plans work differently: the provider buys large bars and credits you with a share, so you do not buy small pieces. What such a plan costs compared with an ETC after tax is worked out in the article on monthly gold savings.
Selling and convenience
You sell an ETC on the exchange in seconds while the market is open, and the cash arrives in two business days. Physical gold you sell to a dealer. It takes from a few hours to a few days, depending on the dealer and the amount.
On the other hand physical gold does not depend on an exchange, a broker or the banking system. If something seriously went wrong, you would still own the metal.
Risks
With physical gold the main risks are theft or loss, counterfeits (so buy only from reputable dealers) and a high premium on small pieces.
With an ETC the risk is different: you depend on the issuer, the gold custodian and your broker. In extreme conditions trading can be difficult. Every sale at a profit also creates a tax liability.
Currency risk is the same for both. Gold is priced in dollars, so your return in euros also depends on the euro-dollar exchange rate, whether you hold a bar or an ETC, and whatever currency the ETC is quoted in.
Neither option is risk-free. The question is which risks you are willing to accept.
When each makes sense
Physical gold makes sense if:
- you want to own the metal and worry about systemic risks,
- you plan to hold the gold for at least several years,
- you buy a larger amount at once, in pieces of 20 to 31 grams or more,
- you are ready to arrange safe storage.
A gold ETC is the better choice if:
- you invest small amounts or every month,
- you want a quick sale and easy rebalancing with your other investments,
- you don’t want to deal with storage,
- you don’t mind not holding the metal.
Many investors do both: some money in physical gold for the long run, some in an ETC because it is easier to sell.
How to go about it
For physical gold, buy bars or coins from at least 20 to 31 grams, where the premium becomes reasonable. Compare the price per gram at several dealers, buy bars from refiners on the LBMA Good Delivery list and keep the invoice and certificate.
For an ETC, choose a physically backed product with a low annual fee and buy it through a reliable broker. Keep the statements of purchases and sales, as you will need them for the tax return. You can compare funds in the ETF comparison.
How much gold to hold
A common starting point is 5 to 10% of investments. It is not a rule, just a frame of reference. Gold pays no interest or dividends and has in the past stagnated for years or lost a third of its value. Over the long run shares have returned more on average, while gold is useful as a hedge when shares fall.
Before buying gold, build a reserve in a savings account or a deposit and a basic investment plan, such as regular investing in broad ETFs. If you are still deciding what suits you better, read when to save and when to invest.
Check the numbers
The gold and silver calculator shows how regular monthly investing in gold would have done in the past. The gold, silver, deposit and ETF comparison puts all options on the same timeline with the same amount. How regular investing in equity funds grows, you can work out with the investment calculator. More on how gold behaved alongside other investments is in the article on gold and silver as an alternative investment.
In short
Physical gold wins on tax and ownership. A gold ETC wins on simplicity, quick sale and lower costs for small amounts. The decision depends on the amount, the time horizon and what matters more to you. There is no single answer, but it is important to know exactly what you are buying.
If you have decided on physical gold, you can send an inquiry about buying gold or silver and decide with no obligation whether to accept the offer.
