ETFs = speed, liquidity, convenience: they trade all day in a brokerage account, with tight spreads and automation, at the cost of a continuous expense ratio and reliance on intermediaries. Physical bullion = self-custody, sovereignty: no fund fee, but you’ll face upfront premiums, storage/insurance, and resale logistics. In normal markets, ETFs hug spot minus TER; physical trades at spot plus/minus market premiums that can widen under stress. The right vehicle depends on time horizon, custody preferences, trade frequency, and local tax rules. Tactical traders and allocators generally favor liquid, physically backed ETFs such as SPDR Gold Shares and iShares Gold Trust, while long-term “sovereign” stackers prefer widely recognized coins and bars they can audit and hold directly. Both can work together in a barbell approach: ETFs for fast adjustments, physical for enduring wealth insurance.
Gold ETFs vs Physical: Fees, Liquidity and Tax — The 60‑Second TL;DR Expanded
Investors routinely confide that gold is both a “tool” and a “totem.” As a tool, it’s a liquid diversifier that can be sized to the basis point; as a totem, it’s a bearer asset that outlives platforms and policies. The practical dilemma is choosing between physically backed ETFs—shares representing vaulted bullion—and physical bullion—coins and bars you own directly. The quick answer: ETFs dominate on speed, liquidity, and precision; physical dominates on self-custody and privacy. But the quick answer hides cost and operational subtleties that only show up at purchase, in storage, and at resale.
Picture two personas. Ava is a swing trader who wants to express a view on real yields this afternoon and unwind tomorrow. Mateo is a decade-long saver who wants a stash that doesn’t rely on a broker’s login or an ETF issuer’s solvency. Ava’s job is all about execution—she needs intraday liquidity, marginability, and precise position sizes. Mateo obsesses over custody—which mint, which vault, how to document serial numbers, and how to resell quickly if needed. Each can optimize costs in their domain, yet each pays a different bill: Ava pays a TER + bid–ask spread each time; Mateo pays a premium + storage/insurance + resale spread.
To ground the trade-offs, consider the flagship ETFs and trusts: SPDR Gold Shares (GLD), iShares Gold Trust (IAU), Aberdeen Standard Physical Gold Shares ETF (SGOL), VanEck Merk Gold Trust (OUNZ), Goldman Sachs Physical Gold ETF, Sprott Physical Gold Trust (PHYS), and regionals like WisdomTree Physical Gold and the Royal Canadian Mint Gold ETF. These hold allocated bars in vaults and target spot minus costs. For contrast, futures-linked vehicles such as the Invesco DB Gold Fund have different dynamics (roll yield, collateral), and mining-stock funds like the Franklin Gold and Precious Metals Fund are equity exposures, not bullion. Choosing well starts by matching instrument design to goal.
- Use ETFs for intraday trading, hedging, rebalancing, and automated DCA in brokerage or retirement accounts.
- Use physical for self-custody, long-horizon wealth insurance, and emergency optionality in small, popular coins.
- Run the math on total cost of ownership: ETFs (TER + spreads) vs physical (premium + storage/insurance + future resale spread).
- Check your tax regime; physically backed ETFs can be taxed as securities or collectibles depending on jurisdiction.
- Stress behavior differs: ETF NAV gaps are usually small; physical premiums can widen materially.
| Criteria | Gold ETF (physically backed) | Physical Bullion (coins/bars) | Quick verdict |
|---|---|---|---|
| Ongoing fees | Expense ratio (TER) | No fund fee; storage/insurance costs | Depends: ETFs cheap yearly; physical has fixed storage |
| Upfront cost | Bid–ask spread | Premium over spot + shipping | ETF lower upfront |
| Liquidity | Intraday, deep on major exchanges | Dealer dependent; slower | ETF |
| Tracking | Near spot minus TER | Spot ± market premium | ETF more predictable |
| Custody & counterparty | Issuer/custodian + broker | Self-custody or vault | Physical for sovereignty |
| Privacy | Broker/KYC | Can be private (depends how stored/bought) | Physical |
| Settlement speed | Instant (trade T+2 cash) | Shipping/handling days | ETF |
| Small transactions | Easy to size precisely | Fractional coins exist; premiums higher | ETF |
| Stress behavior | Small NAV gaps | Premiums/spreads widen | Depends (buyer or seller?) |
| Tax (jurisdiction-specific) | Security/collectible rules | Bullion rules; VAT/cap gains vary | Check local law |
Bottom line: pick the vehicle that aligns with how—and why—you hold gold.
What Physically Backed Gold ETFs and Physical Bullion Actually Are
A physically backed gold ETF or trust is a claim on vaulted bullion safeguarded by a custodian. Investors hold shares through their brokerage; the fund holds London Good Delivery bars with serial numbers and fineness. Household names like SPDR Gold Shares and iShares Gold Trust built their reputations on scale and liquidity, while Aberdeen Standard Physical Gold Shares ETF emphasizes Swiss storage. VanEck Merk Gold Trust is notable for offering retail redemption for bars under defined procedures—useful for those wanting optionality. The Sprott Physical Gold Trust is a closed-ended trust with physical redemption for larger holders, and the Royal Canadian Mint Gold ETF leverages sovereign mint custody. In Europe, WisdomTree Physical Gold is a widely used physically backed ETP.
By contrast, physical bullion is the metal itself—coins and bars—from recognized mints like the U.S. Mint (Eagles), Royal Mint (Britannias), Royal Canadian Mint (Maple Leafs), and Perth Mint (Kangaroos), or bars from refiners such as Valcambi and PAMP. Value is driven by fine gold content and market premiums. Custody and insurance are the owner’s responsibility: a home safe, a bank safe deposit box, or an audited third‑party vault with bar lists and serials. The trade mechanics are different too: buying physical typically involves identity checks at reputable dealers, logistics for shipping, and a resale plan (local dealer, mail‑in, or peer‑to‑peer with caution).
It helps to avoid category errors. Invesco DB Gold Fund gives futures exposure, not allocated bars, introducing roll and collateral considerations—useful for some strategies, but not the same as physical. Meanwhile, the Franklin Gold and Precious Metals Fund owns miners; it’s an equity beta with operational, jurisdictional, and cost curve risks. Those can complement bullion, but they are different animals. When the goal is spot gold exposure, prioritize products that hold allocated bars, publish bar lists, and minimize tracking error to spot minus TER.
- ETF structure: shares in a trust; bullion held by a custodian; risks include issuer, custodian, and broker.
- Bullion holdings: coins/bars you own; risks include theft, storage, and liquidity at resale.
- Documentation: seek bar lists, audits, and clear redemption rules when they exist.
- Recognizability: choose popular coins/bars to ensure tighter buy–sell spreads later.
- Alternatives: tokenized gold exists—see an overview of XAUT and PAXG—but custody/trust and on‑chain risks differ.
For readers deciding between 1 oz coins and 100 g bars, this practical guide helps compare premiums and liquidity: Gold Bars vs Coins. For a sitewide hub of research and tools, bookmark BasisGold.
Whichever route is chosen, the asset’s plumbing—vaults, audits, dealer networks—matters as much as the headline ticker or mint.
Fees, Spreads, and Total Cost of Ownership in Gold ETFs vs Physical
Costs are where many investors win or bleed quietly. With ETFs, a total expense ratio (TER) accrues daily and is embedded in the share price over time. There is also a bid–ask spread that can be only a few basis points for liquid funds like SPDR Gold Shares or iShares Gold Trust, plus any brokerage commissions. Physical bullion replaces the TER with a purchase premium over spot, potential shipping, and ongoing storage/insurance if not stored at home. The round trip ends with a resale spread: dealers buy back at a discount to spot or to their own offer, sometimes tighter for popular coins and wider for niche bars.
A simple mental model can keep decisions clean. Year 1 all‑in for ETFs ≈ TER + trading spread (+ commissions). Year 1 all‑in for physical ≈ purchase premium + storage/insurance + expected resale spread. Imagine Ava buying $50,000 of GLD with a 0.10% TER and a 0.02% spread; her explicit cost in year one is roughly 0.12% plus commission. Mateo buys $50,000 of 1 oz Maple Leafs at spot +3%, pays 0.4% for insured storage, and expects a 1% spread when selling back; his first‑year cost approximation is 4.4%. If Mateo holds for ten years, the equation changes—storage compounds, while the ETF’s TER compounds too. The crossover depends on specific rates and horizons, so investors should plug their actual quotes.
Below is a simple scenario table to calibrate intuition. These are illustrative inputs; use your real quotes and insurer terms before acting.
| Scenario | ETF: TER | ETF: Bid–Ask | Physical: Premium | Storage/Insurance (yr) | Resale Spread | Year‑1 All‑In (ETF) | Year‑1 All‑In (Physical) |
|---|---|---|---|---|---|---|---|
| High-liquidity ETF vs popular coins | 0.10% | 0.02% | 3.00% | 0.40% | 1.00% | 0.12% | 4.40% |
| Lower-cost ETF vs 100 g bars | 0.17% | 0.04% | 2.00% | 0.35% | 0.80% | 0.21% | 3.15% |
| ETF via commission-free broker vs home storage | 0.25% | 0.03% | 4.00% | 0.00% | 1.50% | 0.28% | 5.50% |
Costs are not static. In 2020’s supply chain crunch, physical premiums and dealer spreads widened, while ETF spreads largely stayed tight. In extreme demand waves, physical owners might benefit at resale if buy-back prices incorporate elevated premiums, but that same environment is painful when trying to acquire. ETFs rarely surprise on cost unless liquidity escapes to after-hours or the underlying market is closed. This is why disciplined buyers keep a running spreadsheet of “all-in” cost components and refresh it before each purchase.
- Before you buy: collect quotes on premiums, storage, and insurance; read the ETF’s fee table and your broker’s commissions.
- Use popular products: liquidity and recognizability compress spreads both going in and coming out.
- Automate where suitable: DCA in ETFs can reduce timing risk; this primer explains cadence planning.
- Stress test the plan: how do costs change if premiums double or if you need to sell within 24 hours?
- Bookmark a checklist: download a pre-buy worksheet via this link and a sell-side checklist via this resource.
Remember: it’s not the line-item fee that matters; it’s the lifetime friction relative to your use case.
Liquidity, Execution, and Tracking Error: How Close to Spot Do You Really Get?
Liquidity dictates what you can do on your timeline. Physically backed gold ETFs list on major exchanges, trade intraday, and often show penny-wide spreads at scale. SPDR Gold Shares and iShares Gold Trust exemplify this, while regional options like WisdomTree Physical Gold provide similar behavior on European venues. ETFs also enable precise position sizing, odd-lot orders, and margin or options overlays at many brokers—capabilities that matter to risk managers and traders. When large inflows occur, authorized participants create shares against newly delivered bars; when outflows occur, shares are redeemed and bars exit the vault—this mechanism keeps price close to NAV.
Physical bullion marches to a slower drum. Dealers set offers based on spot plus a premium that reflects wholesale costs, shipping, and inventory risk. When buying, buyers often face shipping times and identity checks; when selling, dealers quote a buy price that can be at or below spot depending on product and demand. During market stress, the premium mechanism widens: a surge of retail demand can empty dealer inventories and push premiums higher. That’s great for sellers but punishing for buyers. And unlike ETFs, one doesn’t sell a precise $3,417.62 amount—denominations are lumpy, though fractional coins exist at higher premiums.
Tracking error is the underappreciated hinge. ETFs typically track spot minus TER, with occasional small premiums/discounts to NAV that arbitrageurs usually compress during market hours. Trusts like the Sprott Physical Gold Trust may periodically trade at small premiums or discounts depending on sentiment. Physical bullion “tracks” spot plus/minus premiums, which may stick around even after stress subsides. This is why popular coins (Maple Leafs, Eagles, Britannias) tend to be superior: they have deep two-way markets and tighter buy-back spreads. Regional ETFs such as the Royal Canadian Mint Gold ETF can also reflect local liquidity patterns and holiday calendars.
- If you need same-day execution, ETFs win: intraday liquidity, tight spreads, and continuous price discovery.
- If you need precise size (e.g., 5.73% allocation), ETFs are inherently granular; bullion denominations limit precision.
- If you need small-ticket optionality for emergencies, 1/10–1 oz coins are useful despite higher premiums.
- If you care about NAV slippage, monitor premium/discount data published by funds like Aberdeen Standard Physical Gold Shares ETF and VanEck Merk Gold Trust.
- For alternative rails, study tokenized gold mechanics via this explainer before committing capital.
In practice, “close to spot” means “minus TER” for ETFs and “plus/minus premium” for physical—two different but predictable roads to the same destination.
Tax Treatment, Custody, Privacy, and Operational Frictions Compared
Tax, custody, and day‑to‑day frictions often decide the winner once costs and liquidity are understood. Tax treatment is jurisdiction-specific. Some countries treat physically backed ETFs as securities eligible for capital gains rates; others classify them as collectibles with different tax rates or holding period rules. Physical bullion may be exempt from VAT if it meets investment-grade purity standards, and some jurisdictions offer favorable treatment for certain coins. Because these rules vary and change, investors should consult a local tax guide and platform-specific disclosures rather than rely on generic assumptions.
Custody sits on a spectrum. With ETFs, custodians safeguard bars and issuers publish audits; investors rely on both the fund’s plumbing and their brokerage. There’s a paper trail and KYC by default. With physical bullion, self-custody is possible—home safes, decoy safes, and layered security—or one can use third‑party vaults or bank boxes. Each method carries trade-offs: homes offer instant access but theft risk; bank boxes offer strong doors but limited access windows; private vaults offer audits and insurance but recurring cost. Some products, like VanEck Merk Gold Trust, allow retail redemption of bars under specific procedures—useful if one wants to transition from paper to metal without selling.
Privacy is another dividing line. Brokerage accounts generate transaction histories and tax forms, while cash purchases of bullion (subject to legal limits and dealer policies) can be more discreet. However, privacy should never compromise safety or compliance. Keep detailed records of serial numbers, invoices, and photos for insurance. Also read the fine print on vault insurance: some policies cover only named perils; others require itemized bar lists or specific storage conditions. And if lending or rehypothecation worries you, review your broker’s account agreement to understand collateral rights attached to margin features.
Operational friction is where lived experience bites. ETFs settle quickly, integrate with portfolio tools, and can be borrowed against subject to broker rules. Physical requires time and planning: verifying authenticity (e.g., ultrasonic testing at reputable dealers), arranging insured shipping, and rehearsing the resale path before it is needed. High-recognizability assets—Maple Leafs, Eagles, Britannias, 100 g and 1 kg bars from top refiners—shorten the resale cycle. Less common products might carry a “curiosity discount.” For those exploring adjacent rails such as tokenized gold, understand wallet security, smart‑contract risk, and exchange custody before diving in.
- Tax homework: consult a local guide and fund prospectus for ETF and bullion rules in your country.
- Custody plan: decide between home, bank box, or private vault and document serials and photos.
- Insurance fit: confirm covered perils, deductibles, and claim documentation.
- Privacy posture: weigh discretion against the need for clear records and lawful compliance.
- Operational rehearsal: practice the sell path; keep trusted dealer contacts updated.
For structured prep, grab an actionable checklist here: buyer’s checklist and a worksheet for sale logistics here: resale planner. For quick reference to premium dynamics and sizing, this simple explainer can help: premium primer. And if you’re choosing coin sizes, revisit our coin vs bar guide before locking in an order.
When the goal is to sleep well, a written custody and tax plan is not optional—it’s the strategy.
From Stress Scenarios to Use-Case Matching: Picking the Right Vehicle Today
Markets test plans at the worst possible moment. Stress reveals whether you chose for optics or for function. In high-volatility episodes, ETFs typically remain tradeable with small NAV dislocations that close quickly during market hours; deep funds like SPDR Gold Shares and iShares Gold Trust often act as the market itself. Meanwhile, the physical market can bifurcate: online dealers run low on inventory, premiums jump, and shipping delays expand. Walk-in sellers can still find bids for popular coins, but less common bars might face steeper discounts. Investors with prearranged vault instructions and dealer relationships experience smoother exits than those starting cold.
Rather than debate dogmatically, align vehicle to job description. Traders and allocators who need to hedge real-rate shocks for weeks or months can lean into ETFs, possibly adding exposure to regionals like WisdomTree Physical Gold for timezone alignment. Long-term stackers seeking sovereign control can accumulate 1 oz coins and 100 g bars monthly, documenting serials and storage. Some split the difference with redeemable structures—VanEck Merk Gold Trust for optional redemption or Sprott Physical Gold Trust if comfortable with a closed-ended trust. Avoid mixing in the wrong tools: Invesco DB Gold Fund is futures-based, useful for certain macro trades but a different beast; Franklin Gold and Precious Metals Fund provides equity beta, not bullion.
Let’s turn guidance into a practical decision map. Ava, who rebalances a 60/40 portfolio and occasionally hedges drawdowns, uses ETFs for automation, reporting, and tight execution. Mateo, who treats gold as “wealth insurance,” buys recognizable coins from top mints and pays for audited storage with confirmed insurance. A family office might do both: a tactical sleeve in ETFs and a strategic sleeve in physical. If collateralization is required—borrowing against the position—brokers usually prefer ETFs; if off‑grid resilience is the need, physical is unmatched. The endgame is simple: put each vehicle where it is best-in-class.
- Day-trade/hedge/tactical allocation → ETF (e.g., GLD, IAU, SGOL).
- Automated DCA in brokerage/retirement → ETF; document broker fees and lending policy.
- Long-term “wealth insurance” + self-custody → Physical coins/bars with audited vaulting.
- Emergency barter/small tickets → 1/10–1 oz coins from recognized mints.
- Collateral/margin → ETF (subject to broker rules).
- Off-grid/sovereign storage → Physical (vault/home safe, layered security).
For readers who love checklists, this compact “how to choose” explainer distills the flow: trade/hedge → ETF; automation → ETF; sovereignty → Physical; small‑ticket flexibility → Physical coins. For longer dives on storage and cost modeling, see our hub at BasisGold and the sizing primers linked above.
Stress is not the time to discover frictions. Choose now, on your terms, with eyes open to the strengths and compromises of each path.
Pre-Buy Checklist: Don’t Skip the Boring Parts
A short, action-focused pre‑buy checklist makes friction visible before money leaves the account.
- For ETFs: verify TER, tracking differences vs spot, primary exchange, daily volume, custodian, bar list policy, and your broker’s spread/commission and lending/rehypothecation policy.
- For physical: confirm mint/refiner recognition, current premium versus spot, storage method and insurer, buy-back terms in writing, and your resale plan including ID requirements and expected settlement time.
- For both: document tax treatment in your jurisdiction and any reporting thresholds; rehearse an exit in calm conditions.
Good process turns “maybe later” into “already handled.”
For a complementary walkthrough with examples and printable worksheets, this guided article may help: planning guide.
FAQ
Do physically backed gold ETFs let retail investors redeem for bars?
Most do not offer retail redemption. Certain structures, such as VanEck Merk Gold Trust or Sprott Physical Gold Trust, provide redemption paths under specific conditions (minimum sizes, fees, and procedures). Always read the prospectus.
Are mining-stock funds a substitute for bullion?
No. Funds like the Franklin Gold and Precious Metals Fund own equities with operational and market risks distinct from bullion. They can complement, but they are not a replacement for physical exposure to the metal.
What coin/bar sizes minimize cost?
In general, larger bars have lower premiums per ounce, but 1 oz coins from recognized mints balance liquidity and cost. Fractional coins offer flexibility at the cost of higher premiums. Compare current quotes and buy-back terms before deciding.
How do premiums behave in market stress?
Dealer premiums and buy-back spreads tend to widen when retail demand surges or supply tightens. Sellers of popular coins may benefit from elevated buy-bids, while buyers face higher entry costs and potential delays.
How does tax differ between ETF vs physical in my country?
Rules vary. Some jurisdictions treat physically backed ETFs as securities; others as collectibles. Physical bullion may have VAT exemptions or different capital gains rules. Consult a local tax guide and your platform’s documentation before purchasing.