Buying physical gold or investing in ETFs: a comparison

Gold is a symbol of security that has served as an investment for thousands of years. There are different ways you can invest in gold. Whether you prefer to own physical gold or opt for exchange-traded funds backed by physical holdings depends on several factors. This article explains the differences between gold ETFs and physical gold, what a physically backed gold ETC is, and the role played by ownership, liquidity and tax.

• Physical gold: This refers to a precious metal in the form of bars or coins, which legally belongs to the buyer and can be stored independently of the financial system.

• Gold ETFs: A gold ETF is an exchange-traded fund that is often physically backed and mirrors the gold price – you don't own the gold itself, but ETFs offer low-cost and flexible access to the gold market.

• Differences: The two forms of investment differ in structure, accessibility and risk distribution, which can affect availability and control.

• Investment strategy: When choosing a strategy, investors should consider their individual goals, risk appetite and the desired level of independence and flexibility.

What are gold ETFs?

A gold ETF (Exchange Traded Fund) is an exchange-traded fund that closely tracks the performance of the gold price. You don’t buy physical gold, but shares in a security. The fund invests in gold and stores it centrally – but you don’t hold it in your hand.

Many gold ETFs are backed by physical gold. This means: behind each share is a specific amount of gold held for the fund. However, you’re not the owner of the gold, but you benefit from the price development through your share in the fund. The big advantage: you can invest in gold quickly and easily via the stock exchange without having to worry about storage, transport or security. Still, you benefit from a similar value increase as with direct gold purchases.

What are the differences between gold ETFs and gold ETCs?

Gold ETFs and gold ETCs are both ways to invest in gold – but they work differently. Compared to a gold ETF, a gold ETC (Exchange Traded Commodity) is not a stake in a fund, but a debt security. That means: you lend money to the issuer of the ETC, who in return promises to repay you the equivalent in gold. If the ETC is physically backed, the provider stores real gold as collateral. Still, legally you’re only a creditor – so you don’t have a direct claim to the gold itself, just to repayment.

Put simply: with an ETF you own a share in a “pot of gold” that you are legally entitled to. With an ETC, you give money to a provider who promises to secure it with gold – but in a worst-case scenario, you have less legal security. That’s why ETFs are often seen as slightly less risky, while ETCs are more flexible and sometimes cheaper.

What is physical gold?

Gold isn't just a digital product – you can also own it directly. The classic form of this physical investment is gold bars or coins made of almost 100% pure gold. They usually come in standardised sizes, e.g. one, ten or 100 grams. Many investors value gold as a precious metal because it maintains strong intrinsic value independent of digital systems – regardless of market fluctuations or technology failures. You can store your gold privately or in a high-security vault, depending on your preference. Certified safes are particularly popular, as they are secure and accessible in an emergency.

Want to buy physical gold or compare ETF-based products? At Bitpanda, you can buy certified quality physical gold directly online. Bitpanda Metals gives you access to real gold bars stored in high-security vaults in Switzerland via trusted partners.

Physical gold or gold ETFs: what are the differences?

Gold ETFs and physical gold follow different approaches when it comes to ownership, security and flexibility. Let’s look at the key differences in detail.

Purchase

You can buy physical gold from specialist precious metal dealers, banks or via digital platforms. You choose from various bar or coin sizes, which can be delivered to your home or stored in a high-security vault on your behalf. When buying, check for certifications and verified providers to ensure the authenticity and quality of the gold.

Gold ETFs, on the other hand, are purchased through a securities account with a bank or online broker. You don’t need a physical storage facility – you invest in a product that mirrors the gold price via the stock exchange. The process is similar to buying other securities. If you want to invest regularly in the precious metal, you can also include gold ETFs in your savings plan. Learn more about ETF savings plans in our guide.

Costs

Costs depend on whether you want to invest in physical gold or a gold fund. When buying bars or coins, you pay one-off costs such as minting, delivery and storage. ETFs incur ongoing ETF costs, and there may also be individual fees from the respective exchange, broker or spreads.

If you buy physical precious metal via Bitpanda, you pay by the gram and secure storage is already included in the price – no separate custody costs or ongoing fees. The current gold price shows you the market value per gram and helps you decide whether investing in gold ETFs or physical gold is the better choice for you.

Liquidity

Gold ETFs offer you high liquidity, as you can buy or sell them flexibly during trading days and hours. This gives you constant access to the market and lets you react quickly to movements. Their tradability also makes ETFs attractive for short-term strategies, since you’re not tied to complex selling processes. Even though gold ETFs offer high liquidity, they’re also ideal for long-term investment strategies. Their strength lies in participating in gold’s value development over longer periods – short-term price changes shouldn’t be the sole reason for buying or selling. A balanced strategy takes into account both flexibility and long-term perspective.

You can also sell physical gold – but the process is more involved. If you want to sell bars or coins, you often have to return them to verified dealers and wait for authenticity checks. This is less practical when you need capital urgently.

Digital platforms now link real ownership rights with ease of use. For example, you can hold a physically backed gold ETF, where the metal is truly stored, and still respond quickly to market changes. This lets you use physical gold to hedge against price movements without sacrificing flexibility. Bitpanda Metals offers a good way to do this: you can buy physical gold and still trade it flexibly – much like an ETF. This also allows for targeted portfolio diversification. By combining asset classes like shares, traditional funds or physically backed gold ETFs with purchased bars, you can spread your risk more broadly and make your investment strategy more robust.

Legal ownership

When you buy physical gold, you gain a real, personal asset with full proof of ownership. You can store it yourself or have it stored in a high-security vault in your name. You directly decide where your gold is stored and what happens to it – without any intermediaries. 

With gold ETFs or physically backed gold ETCs, it’s different: these products are usually based only on a claim against the provider, not on actual ownership of the gold. The custody structure lies with a bank or trustee – meaning in the event of bankruptcy or government interference, you have no direct control. Even if gold is physically stored in an ETF or ETC, this only provides limited insolvency protection, as you are legally regarded as a creditor, not the owner.

Security

If you own physical gold, you also have full control over your property. You store it yourself and are independent of banks or other providers. This provides a high level of security, especially during financial market turbulence. However, you should ensure secure storage: if gold is kept at home without protection, there’s a risk of theft. Professional storage can provide additional protection. Gold ETFs, on the other hand, depend on third parties. They only reflect the gold price, without you owning the metal. This increases systemic risk, e.g. in the case of custodian bank failures or issuer problems. Many investors therefore turn to physical gold as a crisis hedge – for example, during high inflation or uncertain financial times. Immediate availability can make all the difference in an emergency.

Taxes

If you choose physical gold and hold it for more than one year, any future sale is tax-free in Germany. The holding period is one year. If the gold is sold for a profit after that, no capital gains tax is due. It’s different with gold ETFs: their price gains are usually not tax-free. As a rule, the withholding tax of 25% applies, plus solidarity surcharge and possibly church tax.

You should include tax regulations in your decision, as they can directly impact your return. Investors with a long-term perspective may do better from a tax point of view with physical gold. ETFs leave less room due to taxation.

The pros and cons of physical gold and gold funds

Whether bought physically or represented through a fund, gold is a key component of many investors’ wealth strategies. You can choose from traditional bars and coins, physically backed gold funds or debt securities like ETCs. Which investment type is right for you depends on your risk profile, desire for flexibility and outlook on the gold price. To give you a clearer picture, we've compiled the advantages and disadvantages of gold ETFs and physical gold below.

Physical gold

Advantages

• Legal ownership of a real asset

• Strong crisis protection during economic uncertainty

• Tax exemption after a one-year holding period

• No dependency on issuers or financial institutions

Disadvantages

• Requires secure storage and space

• Lower liquidity and more complex resale

• Higher entry price compared to exchange-traded products

Gold ETFs

Advantages

• Easy buying and selling through a securities account

• High liquidity and flexibility

• Lower entry costs

• Can be included in ETF savings plans

Disadvantages

• No direct ownership of gold

• Issuer risk and taxable capital gains

• Dependent on the creditworthiness of custodians and banks

At Bitpanda, you can not only buy physical gold by the gram, but also enjoy several other advantages: you become the legal owner, and your gold is securely stored in high-security vaults in Switzerland. You can also purchase other precious metals such as silver, platinum or palladium. Learn more about the simple and transparent buying process here:

Conclusion: physical gold or gold ETFs – what's the best strategy for you?

Whether physical gold or ETFs are more suitable for you depends entirely on your investment profile. To determine it, ask yourself the following questions:

• How important is independence from the financial system to you?

• Do you want to secure your wealth long term or respond flexibly to market movements?

• What’s your need for security compared to your return expectations?

• Are you willing to take care of storage and insurance or do you prefer a simple depot solution?

For security-oriented investors who focus on long-term value preservation and want to remain independent of banks or digital systems, physical gold is ideal. It offers legal ownership, crisis protection and tax benefits after a one-year holding period. Physically backed gold funds may also be an interesting option if you want to combine ownership with digital management.

For return-oriented investors who want to remain flexible and actively manage their portfolio, gold ETFs or ETCs are more suitable. They're easy to trade, offer access to broader performance and can be combined with other asset classes like shares. However, be mindful of issuer risk and tax burden.

A balanced portfolio can also combine both options: physical gold as a safety anchor and ETFs or ETCs for flexible allocation. This way, you benefit from the strengths of both worlds – tailored to your personal strategy.

More topics related to gold

Want to know more about gold's historical performance, the risks involved in gold investing and how your gold investments behave in different market conditions? Then take a look at the guides from the Bitpanda Academy. There you'll find out, for example, how central banks and gold are connected, what role gold reserves play in the global economy or whether you should invest in gold or crypto if you’re also interested in cryptocurrencies.