Investing in gold through ETCs: The complete guide

Why does gold remain a “safe haven”?

Gold holds a distinctive place in the investing world because it preserves its value over time, even when everything around it looks unstable. The most practical form of exposure for a European investor is a Gold ETC, an exchange-traded product that tracks the price of gold, without the need for physical possession, storage or insurance of bars.

It does not depend on corporate profits, governments or interest rates; that is why it is considered the "last refuge" in periods of intense uncertainty.

In periods of recession, inflation or geopolitical tension, demand for gold often rises.

Investors treat it as a means of protection against unforeseen events because it cannot go bankrupt, does not "belong" to any country and is not directly affected by the course of an economy.

🔶 Low correlation with equities

• One of gold’s most important advantages is that it does not move in parallel with equity markets.
• When equities correct, gold often acts as a counterweight.
• This reduces the overall volatility of a portfolio.
• It does not mean it always rises, but that it often protects against extreme swings.

🔶 Resilience in periods of high inflation

• When money loses purchasing power, gold often strengthens, because it is considered a real asset with limited supply.
• Its production grows slowly, which makes it a relatively stable "store of value" in periods of monetary easing.

🔶 A stabilising role in the portfolio

Gold’s goal is not to outperform equities. Its role is different:

• to reduce risk,
• to add resilience,
• and to act as a "cushion" in difficult periods.

Although there are periods when gold stays flat or declines, historically it has proven to offer valuable stability when other markets are tested.

How does a gold ETC work: Physical gold or synthetic exposure?

Gold ETCs (Exchange Traded Commodities) let you invest in gold without needing storage, security or physical possession of bars.

Although they seem simple to operate, there are substantial differences between products that hold real gold and those that offer synthetic exposure through derivatives.

Understanding these differences helps the investor choose the right structure for their own strategy.

🔶 What does a physically backed gold ETC mean?

In this type of product, the issuer buys real gold bars and stores them in high-security vaults.

This means that:

• the ETC reflects the spot price of gold with great accuracy
• the structure is simple and transparent
• counterparty risk is limited, since the gold actually exists
• the most reliable issuers even publish the list of bars (serial numbers)

For a European investor, this category is usually the clearest form of exposure to the precious metal.

🔶 What does a synthetic or "swap-based" Gold ETC mean?

In this structure, the issuer does not hold physical bars. Instead, the value of the ETC arises from derivatives such as swaps or futures.

This implies that:

• there is indirect exposure to the price of gold
• a counterparty is involved (e.g. a bank)
• tracking error may arise over short periods
• the structure is more complex and requires a better understanding of the mechanisms

Synthetic ETCs may hold positions in markets where physical possession is difficult or expensive, but they carry increased technical complexity.

🔶 Difference in cost and management

There are specific differences between the two structures:

Physically-backed ETCs

• require storage and insurance of the bars
• therefore have a slightly higher operating cost
• but are considered more transparent and simple for the investor

Synthetic ETCs

• may have a lower TER
• but require technical management of derivatives
• and carry counterparty risk

🔶 What this means in practice for the investor

For the majority of European investors:

• physically-backed Gold ETCs are the most suitable choice when the goal is stability, simplicity and a long-term strategy.
• synthetic Gold ETCs make sense only in more specialised strategies, where a specific type of exposure or hedging is required.

How has gold performed historically and what can an investor expect?

Gold is one of the most misunderstood assets when it comes to performance.

Some consider it "a safe haven that always rises", while others argue that "it gains nothing over the long run".

The truth lies somewhere in between. To understand it properly one needs to see the historical context and gold’s role in the global economy.

Gold does not generate income, nor does it have a growth mechanism. Its value comes from a different characteristic: preserving purchasing power over time.

🔶 Historical behaviour over long periods

If we look back over many decades, we observe that gold:

• has long phases of stagnation,
• experiences sharp rises in periods of inflation or geopolitical tension,
• acts more as protection than as a driving force of returns.

What matters is that gold has the ability to rise when other assets are under pressure, something that does not happen with equities or bonds.

🔶 Gold as a "crisis hedge"

In periods when investment markets faced sharp corrections, gold often moved differently:

• in high-uncertainty environments, demand for gold rises,
• in phases of monetary intervention, many prefer it as a store of value,
• when inflation rises, gold often acts as a hedge.

This does not mean that gold "always rises" in crises.

Historical data show that its behaviour depends on the nature of the crisis, monetary policy and international conditions.

Even so, gold’s stabilising power in difficult periods is one of the most consistent findings in economic history.

For context, during 2024–2025 gold moved to historic highs, surpassing $4,000/oz, as central banks increased their purchases and demand for safe havens strengthened.

🔶 What return can an investor expect?

Gold does not have an "expected return" like equities, because it does not produce profits, dividends or interest.

Its future path depends on:

• inflation
• the path of interest rates
• investor psychology
• geopolitical developments

That is why economists often refer to gold as risk insurance, not as a tool for capital growth.

That is how the investor should view it too: as an element that strengthens the portfolio’s resilience.

Which gold ETCs are popular in Europe?

In the European market, most providers offer gold through ETCs (Exchange Traded Commodities): products that trade on the stock exchange and track the price of gold in almost the same way an ETF works, but with a different legal structure.

In practice, many investors perceive ETCs as ETFs because of the same exchange behaviour, high liquidity and low cost.

Even so, it is important to use the correct terminology: in Europe we invest in gold through ETCs, not through ETFs.

Below are the four basic categories of Gold ETCs a European investor encounters, along with a clear description of how they work.

1. Physically Backed Gold ETCs (Allocated)

This is the most common and reliable category in European markets. Typical characteristics:

• The product holds real gold bars in a high-security vault
• The bars are fully allocated to specific investors
• The issuer often publishes a list with the number and weight of the bars
• It closely tracks the spot price of gold

This model offers transparency and simplicity, which is why it is the most popular among European investors.

2. EUR-Hedged Physically Backed Gold ETCs

Here we have products that offer physical gold holding, but add an important feature: they hedge the currency risk from the USD/EUR exchange rate.

This helps European investors who want clean exposure to the price of gold without their return being affected by dollar fluctuations.

Typical characteristics:

• ideal in periods of strong EUR/USD volatility
• more stable behaviour in euros
• slightly higher cost due to hedging

This category is aimed at investors who want "clean" gold in euros, without dollar fluctuations.

3. Synthetic / Swap-Based Gold ETCs

In this category, the product does not hold physical metal but uses derivatives (swaps, futures) to replicate the price of gold.

On a technical level, this category is useful for understanding how the different price-replication mechanisms work, even though it is not the most widespread choice for the average European investor.

Typical characteristics:

• more complex structure than physical ETCs
• counterparty risk is present
• tracking error may appear over short periods
• some have an extremely low TER

Although less popular, they play a role in the ecosystem and often appear in comparison tables.

4. Gold ETCs with physical delivery (Physical Redemption)

This includes products that, under specific conditions, allow holders to request a physical gold bar by exchanging their exchange-traded units.

They are not often used by retail investors, but are considered a sign of high transparency and reliability of the structure.

Typical characteristics:

• a strong commitment from the provider that the gold actually exists
• a premium option for those interested in real ownership via the exchange
• a minimum number of units is usually required

These are products that "bridge" the world of Gold ETFs with the world of physical gold.

Conclusion

The European market offers a wide and comprehensive range of Gold ETCs, from fully physically backed products to more sophisticated synthetic solutions and physical-delivery options.

Which product is suitable does not depend on its name, but on:

• its structure
• its cost
• its liquidity
• the quality of custody
• the type of exposure the investor seeks

The investor’s role is not to "chase the best ETC", but to understand which structure best serves their own strategy and risk tolerance.

What is the right place for gold in a portfolio?

The discussion about how much gold a portfolio "should" hold is one of the most frequent and, at the same time, one of the most misunderstood.

There is no single "magic" answer that fits all investors.

What exists is historical data and academic research showing in which cases gold improves a portfolio’s risk profile and in which it does not.

Gold is not a wealth-creation tool like equities. It is a tool of stability, hedging and risk reduction.

For this reason, its place in the portfolio should be treated as part of the investor’s defensive strategy.

🔶 What historical research shows about the optimal allocation

Studies spanning decades show that adding gold to a portfolio of equities and bonds can:

• reduce overall volatility
• boost returns in periods of crisis
• improve the return-to-risk ratio

Most analyses conclude that a range of 5–10% is enough to offer protection without "weighing down" the portfolio excessively.

🔶 When lower exposure fits (e.g. 0–5%)

This is preferred when the investor:

• has a long-term horizon and can withstand volatility
• wants to maintain greater exposure to equities
• is not as worried about short-term geopolitical swings
• already has other hedging elements (e.g. high-quality bonds)

For investors following strictly equity-focused strategies, gold acts more as an "insurance premium" than as a core part of returns.

🔶 When higher exposure fits (e.g. 10–15%)

It may be considered when the investor:

• wants strong hedging against inflation
• is concerned about macroeconomic uncertainty
• is in a pre-retirement phase and prioritises stability
• has a portfolio that depends heavily on one economy or currency

Higher gold percentages strengthen defence but reduce potential long-term growth, since gold produces no income.

🔶 How much gold does a European investor need?

Gold’s place for European investors also has an additional dimension:

• it provides diversification from the euro,
• it acts as protection against inflation at the EU level,
• it does not depend on ECB interest rates or local economic cycles.

For this reason, many Europeans maintain some exposure to gold, even if their core strategy is based on equities.

Gold ETCs vs physical gold: pros and cons

The choice between Gold ETCs and physical gold is not simply a matter of preference.

It is a decision that affects cost, convenience, liquidity and the way gold "works" within a portfolio.

Both options can have a place for a European investor, but they serve different needs.

Physical gold has historical prestige and tangible value, while Gold ETCs are designed for simplicity, access and accurate tracking of the spot price.

🔶 Advantages of Gold ETCs

• High liquidity

Gold ETCs trade on exchanges like a stock. This means:

• immediate buying and selling
• low spreads
• full transparency in pricing

• Lower cost compared to physical gold

There are no costs for storage, insurance or transport of bars. The only cost is the TER, which is usually low.

• Simple access and easy automation (e.g. DCA)

With a Gold ETC you can:

• buy gradually, even in small amounts
• include the product in a DCA strategy
• manage your position without practical constraints

With physical bars, such a thing is essentially impossible.

• Accurate tracking of the spot price

Most physically backed Gold ETCs accurately reflect the price of gold, without premiums or discounts.

• Zero custody risks on the investor’s side

The issuer takes on:

• custody
• insurance
• audits

The investor does not carry these responsibilities.

🔶 Disadvantages of Gold ETCs

• You do not have gold "in your hands"

Even if the ETC holds physical bars, the investor has no access to them (except for special products with physical redemption).

• Dependence on the issuer (counterparty risk)

The risk is small in physically backed ETCs, but it exists. In synthetic ETCs it is greater.

• TER charge

Even if it is low, there is an annual cost that does not exist with physical holding.

🔶 Advantages of physical gold

• Direct ownership

You have the metal in your hands, without third parties. This is important for investors who want absolute control.

• No annual management cost

No TER charge. You buy once and it remains yours.

• Resilience to extreme events

In hypothetical scenarios of systemic risk, physical gold is considered the ultimate reserve of value.

🔶 Disadvantages of physical gold

• Premiums and spreads at purchase

Bars and coins are sold with a significant markup over the spot price.

• High cost of storage and insurance

Especially if you do not keep it in a bank safe-deposit box. The risk of theft is real.

• Limited liquidity

Selling physical gold is not an immediate process. It requires:

• physical transport
• quality assessment
• procedural costs

• Difficulty automating and buying gradually

You cannot practically build a long-term position with DCA through physical gold.

Conclusion

Gold ETCs are ideal for investors who want:

• low cost
• high liquidity
• easy management
• accurate exposure to the price of gold

Physical gold is better suited to investors who prioritise:

• direct ownership
• protection against extreme scenarios
• preserving value outside the financial system.