Once someone decides to hold gold as part of their wealth, the first question is no longer whether to buy it, but how. There are two routes: buying bars or coins in your own name, or buying units of a listed product that tracks the gold price. Both rise and fall with that price. That is where the similarities end.
What you buy in each case
With physical gold you buy metal: investment bars or coins, identified and in your name, which you can keep at home, in a safe deposit box or in specialised custody. If tomorrow you want to touch it, sell it, give it away or leave it to your heirs, the asset exists and it is yours.
With a gold ETF you buy a listed security. In Europe, moreover, most of these products are not technically funds but ETCs (exchange traded commodities): debt securities issued by a financial institution and backed by gold that the institution holds in custody. You do not own the gold; you are a creditor of the issuer. If all goes well, the outcome is the same as holding the metal. If something fails along the chain (issuer, custodian, broker), your position depends on third parties.
PHYSICAL GOLD
- You own the metal, identified and in your name.
- No counterparty: it does not depend on any issuer or broker.
- VAT-exempt in investment form.
- Entry cost (premium over spot) and custody if you outsource it.
- Sold to a professional buyer within a few days.
- Inherited, gifted and moved like any other asset.
GOLD ETF / ETC
- You hold a financial security that tracks the price.
- Depends on issuer, custodian and broker.
- No VAT, but broker fees and an annual management fee.
- Bought and sold in seconds during market hours.
- Physical delivery reserved for large volumes: retail investors receive cash.
- Convenient for small amounts and frequent trading.
Taxation in Spain: similar when selling, different when buying
When buying, investment gold (bars of at least 995 thousandths purity and recognised coins) is VAT-exempt. An ETC carries no VAT either, but you pay your broker's purchase fee.
When selling, in both cases the gain is taxed under IRPF (Spanish income tax) as a capital gain within the savings base, in brackets. Neither has a tax advantage on the sale. What does change is this: gold ETFs and ETCs do not benefit from the fund-switching regime that lets Spanish residents defer tax, so selling to switch product is taxed exactly like selling physical gold.
You will find the brackets and a worked example in how much gold you can sell without declaring it.
Costs: the visible and the invisible
With physical gold the costs come at two moments. When buying you pay a premium over spot, higher on coins and small bars and lower on large bars. When selling, the buyer applies a margin to the day's price. In between, if you store the metal yourself there is no annual cost; if you leave it in professional custody, a fee.
With an ETC the costs are continuous: a management fee deducted every day from the unit value, broker fees on purchase and sale, in some cases securities custody, and the spread between bid and ask. Each item is small. Added up over ten years, they are not.
"Physical gold costs more on the day you buy it. The ETF costs a little every year you hold it. Over a long horizon, the balance tips towards the metal."
Liquidity: speed versus independence
An ETC sells in seconds while the market is open, and the cash reaches your account in a couple of days. Physical gold is sold to a professional buyer at the day's price minus a margin; at Equus Capital we buy back from our clients and the transaction closes within a few days, with the metal already in custody.
If your priority is getting in and out often, the ETC wins. If your priority is that the asset does not depend on a market being open or an intermediary answering, physical wins.
The risk that is not in the brochure
The largest ETCs are backed by real bars in a custodian's vaults, with periodic audits. That is true. But those bars belong to the vehicle, not to you, and the right to request physical delivery is reserved for authorised participants and very large amounts. The retail investor is always paid in cash, at whatever price the market sets that day.
Physical gold removes that chain of third parties. In exchange, it adds custody risk: theft, loss or damage if you keep it at home. That is why, except for small amounts, we recommend specialised, insured custody in the client's name; we work with Loomis.
What about an inheritance?
Both enter the estate at their market value on the date of death and are subject to Inheritance Tax. The difference is practical: an ETC shows up on the broker's statement; physical gold has to be located, identified and valued, and purchase invoices should exist. We explain it in inheriting physical gold: taxes and steps.
Which one fits each goal
The ETC fits if you want tactical exposure to gold inside a brokerage portfolio, with small amounts, and you expect to get in and out several times.
Physical gold fits if what you are after is a long-term store of value, wealth that can be passed on, independence from the financial system and the peace of mind of knowing the asset exists and is yours.
Many investors combine both: a base in physical metal that is never touched and a small part in ETCs for trading. What matters is knowing which role each one plays before you buy.
| Feature | Physical gold | Gold ETF / ETC |
|---|---|---|
| What you own | Metal in your name | A financial security |
| VAT on purchase | Exempt (investment gold) | No VAT |
| Tax on sale | Capital gain, IRPF | Capital gain, IRPF |
| Tax-free switching | No | No |
| Entry cost | Premium over spot | Broker fee |
| Annual cost | Custody only, if contracted | Daily management fee |
| Counterparty risk | None | Issuer, custodian and broker |
| Physical delivery | Always | Large volumes only |
| Speed of sale | A few days | Seconds, during market hours |
| In an inheritance | Metal is located and valued | Shows on the statement |
Frequently asked questions
Is a gold ETF backed by real gold?
The largest ETCs are: they hold bars in a custodian's vaults and publish audits. But the bars belong to the vehicle, not to the investor, and there are synthetic products that track the price with derivatives and hold no metal. Read the prospectus.
Can I ask for the gold in an ETF to be delivered?
In practice, no. Physical delivery is reserved for authorised participants and very large amounts. The retail investor always receives cash.
Which one pays less tax on sale?
Neither has an advantage: the capital gain is taxed within the savings base of IRPF, in brackets, in both cases.
Is physical gold safer?
It removes counterparty risk but adds custody risk. That is why we keep it in custody at Loomis, insured and in the client's name, rather than at home.
Can I start small with physical gold?
Yes. Buying coins or small bars periodically lets you build a position month by month. We explain it in how to buy gold every month.
Conclusion
A gold ETF is a convenient tool for tracking the price. Physical gold is something else: an asset you own, with no one's promise in between. For a store of value you want to keep for years and leave to your family, metal in your name is the choice that makes sense. For trading, the ETC. And if in doubt, work out first what you want the gold for, then decide how to buy it.