Physical gold, gold ETCs/ETFs and gold mining shares all give you exposure to the same metal, but in very different ways. With a bar or coin you own the metal itself. With an ETC you own a security backed by gold held in a vault, and with a mining share you own part of a business whose profits depend on the gold price and on much else besides.
The three routes at a glance
| Factor | Physical gold | Gold ETC/ETF | Gold mining shares |
|---|---|---|---|
| What you own | A bar or coin | A security backed by vaulted gold | A share in a company |
| One-off costs | Dealer spread, often around 1–3% on popular bars | Platform dealing fee and a small market spread | Platform dealing fee and market spread |
| Ongoing costs | Storage and possibly insurance | Annual charge, typically about 0.1–0.4% | No holding charge, but business risk |
| Link to the gold price | Tracks the metal | Tracks the metal minus fees | Often moves more than gold, both ways |
| Main risks | Theft, fakes, slower to sell | Issuer, custodian, platform | Management, costs, mine location |
Physical gold: direct ownership, with holding costs
You buy a bar or coin from a dealer and keep it at home, in a safe deposit box or in a vault. There is no intermediary between you and the metal. Investment gold is exempt from VAT in the UK, so on popular bars the gap between the buying and selling price is often around 1–3%. Small bars and coins such as the Sovereign and the Britannia usually carry a higher premium over the metal value. You can compare live prices on our UK gold prices page and see who sells what in the UK bullion dealers directory, which lists firms such as The Royal Mint, Chards and Baird & Co.
The drawbacks are practical. You have to store and insure the metal. When you sell, the dealer buys back below its selling price. Selling also takes longer: you post the metal or visit a dealer, and wait for payment. Buying from unknown sellers carries a risk of fakes.
Gold ETCs and ETFs: gold in your investment account
Most London-listed products that track physical gold are ETCs (exchange traded commodities). Technically they are debt securities backed by allocated gold held in a vault, often in London. You buy them through an investment platform like any share. Some funds track gold through futures or hold mining shares instead, so read the key information document to see exactly what you are buying.
The advantages: you can buy and sell within seconds during market hours, the spread is small and you need no safe. The disadvantages: the annual charge takes a small slice of the value every year, you cannot hold the metal, and you rely on the issuer, the custodian and your platform. With most ETCs a private investor cannot ask for delivery of a bar.
A worked example: put £10,000 into an ETC with a 0.25% annual charge and you pay about £25 a year, or roughly £250 over ten years before platform fees. With a bar of the same value you pay the spread once, but you may pay for a safe deposit box.
Currency matters too. Gold is priced globally in US dollars, so your return in pounds depends on the GBP/USD exchange rate whichever route you choose. The gold price chart in pounds shows how the two have combined over time.
Gold mining shares: leverage to the gold price
A mining company earns the difference between the gold price and its cost of production, so its profits move more sharply than the metal. A simplified example: if mining costs $1,500 an ounce and gold sells at $2,000, the margin is $500. If gold rises 10% to $2,200, the margin becomes $700, which is 40% more. The same arithmetic works in reverse.
History shows this clearly. From the 2011 peak to the late-2015 low, gold fell by about 45%. Over the same period the GDX fund, which tracks large gold miners, fell by about 80%.
Beyond the gold price, a miner’s shares depend on management, debt, strikes, taxes and politics in the countries where it digs, and on new share issues that can dilute existing holders. Some miners pay dividends; gold itself pays no income. You can follow equity markets on our UK stock market page.
UK tax: how each route is treated
- VAT: investment gold (bars of at least 995 fineness and qualifying coins) is exempt. ETCs and shares carry no VAT, although share purchases can attract stamp duty.
- Sovereigns and Britannias: HMRC treats Sovereigns minted from 1837 onwards and gold Britannias as sterling currency, so gains on them are exempt from Capital Gains Tax.
- Bars and non-UK coins: gains on gold bars and coins such as the Krugerrand are within CGT.
- ETCs and mining shares: gains are within CGT when held in an ordinary account. Many physically backed gold ETCs are eligible for a stocks and shares ISA or a SIPP, where gains are sheltered; check eligibility with your provider. Physical bars cannot be held in an ISA.
- Rates and allowance: the CGT annual exempt amount is £3,000. Since 30 October 2024 the main rates have been 18% for basic-rate and 24% for higher and additional-rate taxpayers. Check gov.uk for the current tax year.
- Dividends from mining shares are taxable above the dividend allowance unless held in an ISA or pension.
Questions worth asking yourself
- Do you want to own the metal itself, independent of banks and platforms?
- Might you need the money quickly? Listed products sell in minutes; physical gold takes hours or days.
- Can you live with bigger swings than gold? Mining shares bring them.
- How long will you hold? Over a long period an ETC’s annual charge adds up, while a bar’s spread is paid once.
- Where will you store the metal and what will that cost?
Some people combine the approaches. The choice depends on your aims, time frame and attitude to risk rather than on any general rule.
Bottom line
Physical gold gives direct ownership in exchange for a one-off spread and storage costs, and UK legal-tender coins can be free of CGT. An ETC tracks the gold price with a low annual charge and high liquidity, and can sit inside an ISA, but you never hold the metal. Mining shares move more than gold and carry the risks of the individual company.
Sources: HMRC Capital Gains Manual CG78305 · HMRC VAT Notice 701/21 · gov.uk: CGT rates and allowances · World Gold Council
This is general information, not tax or investment advice.
Frequently asked questions
What is a gold ETC?
An exchange traded commodity is a listed security backed by physical gold held in a vault. It tracks the gold price minus an annual charge and is bought through an investment platform.
Can I hold gold in an ISA?
You cannot hold physical bars or coins in an ISA, but many physically backed gold ETCs are eligible for a stocks and shares ISA. Check eligibility with your platform.
Are gold ETC gains exempt from Capital Gains Tax?
No. Outside an ISA or pension, gains on gold ETCs are within CGT. The exemption for Sovereigns and Britannias applies only to the coins themselves.
Why do mining shares move more than gold?
A miner earns the gap between the gold price and its production costs. A small change in the gold price changes that gap by a much larger percentage, in both directions.
