A grounded, number-aware comparison for European investors deciding between vaulted/physical gold and UCITS gold ETFs/ETCs. We’ll map structures, costs, liquidity, custody, taxes (high-level), and finish with a crisp decision checklist.
What “physical” means (coins, bars, vaulted custody)
“Physical gold” for an EU investor comes in three practical flavors, each with its own operational realities and cost profile: self-custodied coins/bars, vaulted/allocated custody, and unallocated/pool accounts. Understanding the differences up front prevents surprises on spreads, logistics, taxation, and risk.
Coins and bars you hold yourself. You buy sovereign coins (e.g., Krugerrand, Maple Leaf, Britannia) or bars (from 1g to 1kg and beyond) via reputable dealers. You own the metal outright and carry sovereign control—no fund manager, no TER. Your true entry cost, however, isn’t just spot: it’s spot + mint premium + dealer spread. On exit you face the sell-side spread. Add insurance (home safe/bank box), verification, and potential VAT exposure depending on product and jurisdiction (many EU countries exempt certified investment gold; verify locally). Liquidity is “human”—shipping, queues, appointments. It’s excellent for long-term “sleep at night” ownership, awkward for tight, rules-based rebalancing.
Vaulted/allocated custody. You open an account with a platform or dealer that stores allocated bars in professional vaults—often in Switzerland, the UK, or inside the EU—with regular audits and published bar lists. Spreads are typically tighter than retail coin shops; the platform handles insurance and logistics. You pay storage as basis points per year, sometimes with minimums, and potential fees for physical withdrawal. Execution is much smoother than self-custody and often available online around the clock, but still not as instantaneous as an exchange order. For most EU investors who want “real metal” plus workable operations, allocated vaulted is the middle-way.
Unallocated/pool accounts. These keep costs low by pooling claims rather than assigning specific bars. That introduces counterparty/balance-sheet risk and makes them less suitable when your primary goal is resilience insurance.
Who should prefer physical? Long-term savers targeting a structural 2–10% gold sleeve who value legal title and are comfortable with mild logistics. If you intend annual/semiannual rebalancing and rarely trade, allocated vaulted usually hits the best balance of control, cost, and simplicity.
How gold ETFs/ETCs work (creation/redemption, custody)
Physically backed UCITS gold ETFs/ETCs offer exchange-traded access to spot gold with professional custody. Their creation/redemption mechanism keeps market prices close to underlying value and is the reason they often track efficiently with minimal slippage.
Creation/Redemption. Authorized Participants (APs) can create new shares by delivering Good Delivery bars to the vehicle or redeem shares to receive bars. This arbitrage contains premium/discount versus indicative NAV in normal conditions. For you, the investor, that translates into close tracking to spot minus TER, with only ordinary market frictions.
Custody and structure. Focus on products that are physically backed, publish bar lists, and undergo independent audits. UCITS domicile (commonly Ireland or Luxembourg) signals a robust European regulatory framework. Investigate the custodian and any sub-custodians, and check whether the vehicle permits in-kind redemption (generally institutional-only with high thresholds). Share classes can be EUR-quoted, USD-quoted, EUR-hedged, or unhedged; this choice affects how FX shows up in your EUR returns.
Operational advantages.
- Intraday execution: rebalance a 5% sleeve in seconds, ideal for band-based or event-driven rules.
- Visible liquidity: order books, multiple market makers, and AP support.
- Integration: sits in your broker next to equities and bonds; easy to automate.
Watch-outs. Confirm the TER (commonly 0.15–0.40%), observe bid-ask spreads and depth where you trade (Xetra, Euronext, Borsa Italiana, etc.), and monitor NAV premium/discount in stress. Verify the exact custody model (allocated/segregated) and audit cadence.
Who should prefer ETFs/ETCs? Active allocators or anyone who values speed and precision without dealing with physical logistics. If your edge is disciplined rebalancing, a UCITS, physically backed ETF/ETC is typically the most efficient way to implement it.
Cost breakdown: spreads, premiums, storage, TER, FX
Never compare “cheap vs expensive” on a single sticker price. Stack every component across the full holding period—entry, holding, and exit—and translate into all-in bps per year where possible.
Physical (coins/bars). You pay premium over spot (higher for small coins/bars), dealer spreads both ways, insurance, and storage. You also absorb time costs (shipping, authentication). Many EU countries exempt investment gold from VAT, but ensure your product qualifies.
Vaulted allocated. Expect tighter spreads than retail coin shops; pay storage in basis points per year (often 10–40 bps, provider- and size-dependent). Some platforms charge fees for withdrawal/delivery or bar selection. For large tickets and multi-year horizons, the all-in cost can be very competitive.
UCITS ETF/ETC (physically backed). You pay a TER (commonly 0.15–0.40% annually) that usually covers custody/operations, bid-ask spreads that compress with liquidity, broker commissions, and potentially exchange fees. In volatile moments, watch premiums/discounts vs NAV. If your share class is USD-denominated and you base in EUR, you also carry FX. EUR-hedged share classes reduce FX volatility at the cost of hedging drag.
Multi-year math. Over 5–10 years, a 20–30 bps difference compounds. If vaulted allocated totals ~30 bps all-in and your ETF totals ~40 bps, the gap is small; the ETF’s agility might more than compensate if you rebalance actively. Conversely, if you buy small coins at 4–6% premiums and later sell at wide retail spreads, your “breakeven time” against an ETF can stretch for years.
Rules of thumb.
- Small, frequent tickets → edge to ETF/ETC.
- Large, infrequent purchases with long horizons → vaulted allocated shines.
- Collectability/portability preference (small coins) → accept higher premium as a lifestyle choice, not an investing edge.
Liquidity & execution: NAV, market depth, and timing
Gold trades around the clock in global OTC markets, but your vehicle’s liquidity and execution window will shape your real-world fills and tracking.
ETF/ETC trading. Real liquidity is deeper than the on-screen volume—market makers and APs can source metal and hedge exposure in the underlying market. That support usually keeps spreads tight on major venues (Xetra, Euronext). You still want to:
- Prefer mid-session over the first/last 10 minutes of trading.
- Avoid placing market orders during macro prints (CPI, payrolls) when spreads widen.
- Use limit orders; for larger tickets, consider TWAP or staged orders to minimize slippage.
- Monitor the product’s indicative NAV to avoid paying unusual premiums.
NAV dynamics. In dash-for-cash episodes, an ETF can briefly trade at a discount/premium while APs arbitrate. Historically those gaps compress as inventories clear, but they are a reality of exchange-traded wrappers.
Physical/vaulted execution. Liquidity depends on dealer inventory and platform hours. In retail panics, premiums rise and stock can be limited. Selling may require appointments or insured shipping, which introduces time-to-cash risk. The flip side is that you avoid exchange microstructure issues—no NAV gap, no auction volatility—just the dealer’s quotes and rules.
Timing realities. ETF execution is bound by exchange hours. Some vaulted platforms allow 24/7 orders at spot + premium. Choose the environment that matches your rebalancing cadence: if you run bands/event triggers, exchange speed is a hard advantage.
Custody and counterparty risk: what to watch
Your gold sleeve is meant to reduce portfolio fragility; don’t re-introduce fragility via packaging. Scrutinize title, segregation, jurisdiction, audits, and insurance.
Self-custody. The main risks are operational: loss, theft, damage, and authenticity. Mitigate with known dealers, proper verification, and secure storage. There is no issuer risk—your asset isn’t anyone else’s liability.
Vaulted allocated. Insist on:
- Allocated title to identified bars (serial numbers), not a pooled claim.
- Segregation from the custodian’s balance sheet.
- Clear jurisdiction (e.g., Switzerland/UK/EU) and your client rights upon insolvency.
- Independent audits, published bar lists, and explicit insurance.
Physically backed UCITS ETF/ETC. Confirm the custodian’s standing, any sub-custodians, and insurance scope. Fund assets must be segregated from issuer/custodian; read the prospectus for substitution policies (when bars are swapped) and whether there is any in-kind redemption route (usually institutional only). Residual risks are operational/legal, plus transient market discounts in stress.
Synthetic/unallocated notes. Efficient for certain trading constraints, but they carry counterparty risk by design. If your reason for holding gold is resilience insurance, synthetic or unallocated structures are usually mis-aligned with that goal.
Iron rule: If your why is resilience, prefer allocated, segregated custody—whether that’s your vault provider or a physically backed UCITS vehicle with transparent bar lists and audits.
Tax and reporting (high-level, not advice)
Tax disclaimer: The following is not tax advice. EU rules vary by country, wrapper, and personal circumstances. Consult a qualified advisor and document their guidance in your IPS.
Common patterns across the EU (high-level):
- Investment gold (certain coins/bars) is typically VAT-exempt, but capital gains may be taxable depending on your country’s rules.
- UCITS ETFs/ETCs generally follow securities taxation (capital gains, loss offsets, withholding on distributions if any) and come with standard broker reporting.
- FX: EUR-hedged share classes reduce EUR/USD volatility but may not nullify tax consequences from currency movements in your jurisdiction.
- Wrappers: some local pensions/savings wrappers ban direct bullion; UCITS ETC/ETF may be the only gold exposure allowed.
- Estate/gifts: paper trails for ETFs/ETCs simplify valuation and reporting; physical holdings require proof of acquisition and might need professional appraisal.
Action point: Ask your advisor to produce a one-page tax roadmap contrasting physical/vaulted vs UCITS ETF/ETC for your country, and attach it to your IPS.
Use cases: long-term saver vs active allocator
Long-term saver (“set & keep”). Your goal is a structural 2–10% gold sleeve that quietly diversifies equity/bond risk with minimal annual fuss. You value legal title, predictable all-in cost, and jurisdiction clarity.
- Best fit: Vaulted allocated in a reputable jurisdiction with public bar lists, independent audits, and straightforward fees.
- Why not ETF? Continuous TER and the temptation to “tinker” can work against your low-touch intent.
- How you operate: Tranche in (DCA or staged buys) to mitigate timing; calendar rebalancing (annual/semiannual) or band triggers (e.g., ±1.5 pp) with low trade frequency.
Active allocator (“bands & events”). You want gold to hedge and to harvest a rebalancing premium via tolerance bands (e.g., target 5% with 3.5–6.5% corridor) and event-driven top-ups/trims (inflation surprises, real-yield breaks, volatility spikes).
- Best fit: Physically backed UCITS ETF/ETC with low TER, tight spreads, and healthy AUM/liquidity on your venue.
- Why not physical? Friction and latency dilute your rules-based edge.
- How you operate: Write down bands + calendar backstop, use limit orders, monitor NAV/premiums, and keep a cost ledger.
Hybrid (“core + tactical”).
- Core: 3–5% vaulted allocated—sleep-well metal you rarely touch.
- Tactical arm: 0–3% ETF/ETC—fast lane for events and fine-tuned bands.
- This gives you sovereignty where it matters and agility where it pays.
Decision checklist and red flags
Decision checklist (tick each box):
- Primary why: hedge against inflation/FX/drawdown (state explicitly).
- Horizon: long-term (≥3 years) vs tactical (frequent rebalancing).
- Ticket size & frequency: small/frequent → ETF; large/occasional → vaulted.
- Agility need: will you run bands/event triggers? If yes → ETF favored.
- Custody preference: allocated with clear segregation (physical/vaulted/ETF).
- Jurisdiction and audits verified; bar list available.
- All-in cost estimated (bps/yr + entry/exit spreads/premiums).
- Wrapper/tax compatibility confirmed with advisor.
- Rebalancing policy written (bands, calendar, failsafe).
- IPS updated (products, ISINs, custodians, costs, tax note).
Red flags to avoid:
- Unallocated metal without legal clarity on ownership.
- Opaque custody (no bar list, no independent audits).
- Retail premiums that are disproportionate (especially small coins).
- ETFs/ETCs with persistent tracking noise or NAV discounts, low AUM, or wide spreads.
- Grand promises of in-kind redemption for retail with unclear thresholds/fees.
- Tax positioning that’s vague or aggressively marketed without country-specific detail.
Related guides and next steps
- US broker requirements for EU residents W-8BEN, account types, withholding.
- What is a gold ETF? Intro for beginners.
- Where to Buy Gold (dealers, vaulted platforms, due-diligence criteria.
Your next steps:
- Define your objective (hedge flavor) and target weight (2–10%).
- Choose the vehicle (vaulted allocated vs UCITS ETF/ETC) that matches your agility needs and all-in costs.
- Write rebalancing rules (bands + calendar).
- Open the account/broker and do a pilot trade to measure spreads and operational flow.
- File everything into your IPS, including your advisor’s tax memo.
Lasts words
For an EU investor, physical/vaulted and UCITS ETF/ETC are simply two doors to the same asset with different frictions and behaviors:
- If you value legal title, low turnover, and jurisdiction clarity, vaulted allocated wins on alignment.
- If your edge is discipline and speed—harvesting band-based and event-driven rebalances—UCITS ETFs/ETCs are superior tools.
- A hybrid approach (vaulted core + ETF tactical sleeve) often delivers the best of both worlds: resilience plus operability.
The optimal choice isn’t ideological; it’s operational. Compute all-in costs, assess your need for speed, verify custody and audits, and codify rules. Do that, and gold will quietly earn its keep—reducing drawdowns and stabilizing your EUR portfolio exactly when you’ll be grateful for it.
Comparative Table — Physical/Vaulted vs ETF/ETC (EU)
| Factor | Physical (Coins/Bars) | Vaulted (Allocated) | ETF/ETC UCITS (Physical) |
|---|---|---|---|
| Access | Dealer/shop; shipping/appointments | Online platform with KYC; pro vaults | Standard broker (Xetra/Euronext/…) |
| Recurring cost | Insurance/safe deposit (variable) | Storage fee in bps (e.g., 10–40) | TER (e.g., 15–40 bps) |
| Entry/Exit | Higher premiums & spreads (small tickets) | Tighter spreads; possible withdrawal fees | Tight spreads + broker commission |
| Liquidity | Slow; inventory-dependent | Good; online dealing | Intraday; market makers; AP arbitrage |
| Tracking | Spot ± premiums/spreads | Near-spot; storage billed separately | Spot − TER ± NAV premium/discount |
| Custody | Self-custody (operational risk) | Allocated, segregated; insured | Institutional custodian; assets segregated |
| FX | Implicit USD/EUR | Implicit USD/EUR | EUR/USD quoted; EUR-hedged options may exist |
| Best for | “Buy & forget”, sovereignty | Long-term core holding | Tactical rebalancing and agility |
