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Ways to ownLevel 2Intermediate11 minUpdated Physical gold, gold ETC or mining stock?
“Investing in gold” means three very different things. In one you own metal, in another a security and in the third a company. The legal ownership, the source of risk and the cost structure differ in each, even if the price curve looks the same.
- The difference between bars and coins
- What storage and insurance cost in practice
- Why the gap between the buying and selling price is large for physical gold
Bars and coins
Investment gold has a minimum purity set by law: 995/1000 for bars and wafers, at least 900/1000 for coins, plus other legal conditions. Investment gold is sold as bars and coins. Bars are cheaper per gram, while coins are easier to sell in small amounts.
In Finland and the EU, the sale of investment gold is exempt from VAT when it meets the definition of investment gold. Jewelry gold is not included. Its purchase price includes VAT, which makes it a poor form of investment.
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What you own: the chain of ownership
With physical gold, the chain of ownership is short, and that is its key advantage.
- Physical gold in your possessionYou → the metal. No counterparty. You are responsible for storage.
- Physical gold in a vault serviceYou → the custodian → the metal. One counterparty; check whether the gold is allocated in your name.
- Physically backed gold ETCYou → the issuer → the custodian → the metal. More counterparties, but easy trading.
The key question with a vault service is whether the gold is allocated or unallocated. In allocated storage, specific bars are assigned to you; in unallocated storage, you own a share of a common stock of gold.
Costs that are often forgotten
Physical gold is not free to own. Three costs are worth factoring in before you buy.
- The gap between the buying and selling price. With physical gold, the margin is typically clearly larger than with an exchange-traded product. You buy above the spot price and sell below it.
- Storage. Storing gold at home is free but risky. A bank safe deposit box or a vault service charges an annual fee.
- Insurance. Home insurance typically does not fully cover large holdings of precious metals. Check the terms.
This content is for information purposes only and should not be construed as investment advice or a recommendation. Investing always involves the risk of losing capital. The value of financial instruments and investments can go up or down, and past performance is no guarantee of future returns.
- What you actually own in each form
- Why a mining stock is not a gold investment
- Which route suits which purpose
The three routes compared
Physical gold
- No counterparty
- Investment gold is VAT-exempt
- Storage and insurance
- Wide buy–sell margin
- Hard to sell in parts
Gold ETC
- Narrow spread, easy trading
- No storage hassle
- Low starting amount
- Annual management fee
- Issuer risk
Mining stock
- Can pay dividends
- Operating leverage to a rise in gold
- Company risk: management, mine, debt
- Can fall while gold rises
- Behaves like a stock
A mining stock is a stock investment, not a gold investment. It is exposed to the price of gold, but also to everything else that can go wrong in the company.
The ETC structure is a chapter of its own here: it is not a UCITS fund but a debt instrument that typically has physical collateral. The ETF school goes through the structure in more detail. Here it is enough to know that the collateral arrangement and the issuer are worth checking in the prospectus.
Why a mining stock is not gold
A mining company is a business. The price of gold is the price of its product, but its profit also depends on costs, debt, management decisions and how individual mines perform.
Leverage also works in the other direction: when the price of gold rises and the mine's production cost stays the same, the company's margin can grow many times over relative to the rise in gold. That is why mining stocks have historically swung more strongly than gold in both directions.
This content is for information purposes only and should not be construed as investment advice or a recommendation. Investing always involves the risk of losing capital. The value of financial instruments and investments can go up or down, and past performance is no guarantee of future returns.
This content is for information purposes only and should not be construed as investment advice or a recommendation. Investing always involves the risk of losing capital. The value of financial instruments and investments can go up or down, and past performance is no guarantee of future returns. The illustrations are not price forecasts. Gold is not covered by the investor compensation scheme or the deposit guarantee scheme.
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