Physical Gold for Newcomers: What You Need to Know

Home page > Additional information > Investment forms for gold, silver, platinum and palladium > Physical Gold

A summary of the most important information about physical gold:

Gold is a scarce, valuable, and virtually indestructible precious metal that has served as a store of value for thousands of years.
In this context, physical gold products such as gold bars or gold coins are particularly suitable for investors.
Gold is renowned for its high liquidity and value density.
The London Bullion Market Association (LBMA) is an important trading centre for physical gold. The gold price has been set here since 1919.
The New York Commodities Exchange (COMEX), equally important for gold investors, serves as the primary futures market for gold trading.
Gold has a very high stock-to-flow ratio and is well-suited to act as a store of value, because it is rare metal and because the total stock increases very slowly.
Switzerland is a popular location for storing investment gold, thanks to its political and economic stability, its focus on discretion and data privacy, and the access afforded to potential tax advantages.
Specialist high-security storage providers such as Swiss Gold Safe have the essential expertise and experience required for the secure and efficient safekeeping of gold.

Introduction

Gold is more than just a commodity. This coveted precious metal is scarce, valuable, virtually indestructible, and has served as a store of value across a broad range of cultures for thousands of years. It also underpins our current monetary system and is an essential commodity used in various industrial applications, in addition to its role in the production of high-quality jewellery.

Beyond these functions, gold has for some time enjoyed a special reputation as a hedge against global crises and the risk of inflation. Even when there seems little chance of any crisis appearing on the horizon, many financial experts still recommend investors should add gold to their holdings in order to spread (i.e. reduce) the overall level of financial risk to which their investment portfolios are exposed. If you’re considering buying gold or are generally interested in the topic, this article covers the most important information you’ll need to know.

Physical Gold vs. Gold Securities

Those who wish to buy investment gold have two basic options. You can purchase physical gold, or invest in securities associated with this precious metal. Physical gold refers to the raw yellow metal in material form. However, investors favour certain types of gold bars or gold coins, because these items are designed to meet the specific requirements of what is usually termed investment gold. In comparison to these dedicated items, other types of gold – for example, gold jewellery, gold granules, scrap gold and dental gold – are deemed unsuitable for investment purposes. This is primarily because of their inconsistent purity, lack of verifiable manufacturing provenance, and above all, because they are associated with tax disadvantages. In Switzerland, for example, the purchase of pure investment gold is exempt from VAT. And in passing, it should also be noted that a large proportion of the world’s physical gold is processed in Swiss refineries.

A number of different securities are related to gold, and the term “paper gold” is commonly used to refer to these entities. We will outline the most important ones, listed as follows:

The term “gold stocks” or “gold mining stocks” colloquially refers to the publicly traded shares of companies whose primary focus is gold mining. In general, the share price of these companies will often tend to rise whenever gold makes market gains. However, any sector-specific mining-related issues, logistical, or economic problems can also lead to a fall in mining share prices, even when gold prices are rising.

Gold ETCs – Exchange Traded Commodities – are not only exchange-traded securities as the name suggests, but also promissory bearer bonds. They reflect the gold price and often have physical gold backing and may include a right to delivery of the gold. However, investors could be exposed to losses in the event of the issuer’s insolvency.

Precious metal ETFs, for example gold ETFs, avoid such risks because with these exchange-traded funds, as with all investment funds, the assets form part of a separate fund. Thus they cannot be included in any insolvency estate because the assets actually belong to the owners of shares in the fund. However, classic pure gold ETFs are not allowed in some countries (such as EU member states) for legal reasons.

Gold futures are more suitable for stock market and commodity professionals and those who enjoy a wager, than for traditional investors. They are unconditional, forward-looking contracts in which gold must be bought or sold at a certain fixed price at one specific point in the future.

Gold options are similar to futures. However, the buyer has only a right, not an obligation, to execute the respective contract. They will thus tend to do so only if it proves to be economically advantageous, i.e. if the gold price has moved in a lucrative direction during the term of the contract.

Gold certificates are securities that also reflect the current gold price. However, they usually include no claim to physical gold, only the issuer’s promise to pay. As such, the risk to investors of any potential issuer insolvency is generally even higher than with an ETC.

Gold Bars

Purchasing gold bars is a popular way to save large amounts of gold. And since they are available in various denominations from one gram up to to 12.5 kilograms, there are a host of options to suit virtually any budget.

However, they can incur a higher premium above their pure material value, especially for very light bars, because the processing of smaller units leads to higher production costs relative to the final price. Gold bars typically contain at least 99.5% of the valuable precious metal. Today’s gold bars destined for investment purchase – typically known as investment bars – are typically 99.99% gold.

There are two established techniques for the production of gold bars: Lighter bars weighing up to 100 grams are usually produced via a minting process very similar to the technique used for minting coins. These minted bars can be easily identified by their shiny surfaces. However, larger gold bars are cast in moulds, and thus have a somewhat rougher surface for technological reasons.

For buyers, the authenticity of the gold bars they purchase is of course a crucial consideration. Therefore, investment gold bars are usually sold along with a certificate of authenticity – and in recent years, with anti-counterfeit holograms too. Refineries included in the so-called Good Delivery List (GDL) are generally considered particularly reliable. These are manufacturers who meet the strict requirements of the renowned London Bullion Market Association (LBMA). So a place on the GDL list can also be interpreted as a sign of quality. Good Delivery Bars (the so-called standard bars) are unsuitable for most private individuals, because these gold bars weigh heavy at 400 ounces – more than 12.4 kilograms. This naturally results in a very high purchase price. Investors contemplating any partial sale of their physical gold holding in smaller denominations are better served by what are known as CombiBars. These minted bars have predetermined breaking points between the individual segments, allowing parts of the gold bar to be separated and sold on individually as required.

Gold Coins

Gold coins were once used as currency, but today are more often used as a store of value. Nevertheless, not all gold coins are equally suitable for this purpose. Dedicated investment coins, also known as bullion coins, are specifically recommended for use as investments. While the intrinsic value of such coins is primarily derived from the value of the precious metal they contain, the focus of most collector coins is on their respective collector value. However, it must be said that this particular aspect is often subject to fashion and periodic fluctuations.

Typical bullion coins have a high fineness and a (mostly) consistent design over time. This minimises minting costs and thus moderates any purchase premium they may attract above their pure precious metal value. Despite this, bullion coins are generally more expensive to purchase than bullion bars of similar weight. Just like bullion bars, bullion coins too are available in various denominations. The most popular weight for most coins is one troy ounce – approximately 31.1035 grams, or to be even more precise, 31.1034768 grams.

The range of gold investment coins available is extensive, with the Krugerrand being a classic example. South Africa has been minting this bullion coin since 1967, and it remains in high demand far beyond the African continent. While the Krugerrand itself has a relatively low fineness of 916.6/1000, the Austrian Vienna Philharmonic bullion coin offers a very high fineness of 999.9/1000 and has become a real bestseller, especially in Europe. Other gold investment coins enjoying worldwide popularity include the American Eagle, Australian Kangaroo, Britannia, China Panda, and Maple Leaf. Alongside these, Switzerland also offers investors two famous gold bullion coins of its own: the Goldvreneli and the Helvetia.

High Liquidity

Physical gold offers many advantages. This precious metal not only has a high intrinsic value and value density, it is also virtually indestructible. High liquidity, which is particularly important to many investors, is also an important feature of investment gold. Not only can gold be bought or sold worldwide from various banks and precious metals dealers, its trading spreads are also very low. This in turn ensures that buying and selling prices remain very close together, thus maintaining transaction costs at a low level to the benefit of private individuals who wish to buy or sell gold. However, it is important to find a reputable transaction partner who can both guarantee the authenticity of the gold and also offer a fair pricing structure. We generally allow our clients a free choice as regards trading partners, but can readily recommend Echtgeld AG – a reputable and reliable precious metals trading company with many years’ experience – for trading precious metals.

Buy gold in Switzerland with our partner Echtgeld AG!

International Gold Trading

International gold trading significantly influences the availability, quality, pricing, and standardisation of the physical gold acquired by retail investors. There are two trading centres at the heart of global trade, one in London and the other in New York. Although each has a slightly different focus, their interaction nevertheless has a direct impact on investment gold owned by private individuals and on the value of such investments.

For many years, London has been the most important trading hub for global, large-volume trading in physical gold. Here, the majority of transactions take place over-the-counter (OTC) through the London Bullion Market Association (LBMA). This is a long-established organisation whose primary responsibilities cover many aspects of trading in gold and silver bars, including regulation and supervision. The main players here are large institutional market participants, such as central banks, refineries, and commercial banks. They trade gold primarily in Gold Delivery Bars (standard bars) as previously described. However, this physical trading also has a direct impact on the value of any gold owned and traded by private investors. Since 1919, the world market price for physical gold has been set by this long-established trading centre.

The New York trading centre is more of a complementary institution rather than a direct competitor. Unlike London, the New York Commodities Exchange (COMEX) is not a direct spot market trading venue, but operates as the primary futures market for gold trading. New York transactions take place both on the trading floor and, increasingly, via electronic trading systems. The Commodity Futures Trading Commission (CFTC) is responsible for regulating futures and options trading in the United States. COMEX trading is also relevant to those with gold holdings because movements in the price of gold futures reflect and influence global expectations for the price of spot gold, and thus the potential value of physical gold held by investors.

Secure storage of physical gold

Gold is valuable and thus an attractive target for thieves. Gold owners should therefore take particular care over the safekeeping of their precious metal investment. There are a number of options. Home storage is not recommended, because professional thieves can usually detect even the most sophisticated hiding places. However, purchasing a modern security system (including a safe) rapidly consumes vast sums of money – thus reducing any funds otherwise earmarked for purchasing gold. This prompts some gold owners to resort to using a bank safe deposit box. However, since renting safe deposit boxes is no longer part of the core business of most banks, the available security measures on offer are often suboptimal and outdated.

Thus, many experts recommend storing physical gold with a specialist storage company that can guarantee highly secure storage of precious metals. Switzerland is a particularly popular location in this regard because the Alpine republic combines great political and economic stability with proverbial discretion and consistent high standards of data protection. In addition, investment gold can be stored completely legally, VAT-exempt and duty-free, in a bonded, duty-free (ZFL) warehouse or in an open bonded (OZL) warehouse. For many years, Swiss Gold Safe has been offering highly secure facilities at attractive terms for the storage of gold, other precious metals and valuables, to clients from all over the world. Clients can choose between gold held in individual storage or in a safe deposit box, and can also benefit from various other advantages. Gold purchased from Echtgeld AG can be conveniently delivered direct to our facilities and stored securely!

Gold: Production Rate and Stock-to-Flow Ratio

Gold is also particularly valuable because it is a rare precious metal with limited reserves. Geologists estimate that, on average, there is just one single gram of gold per each 250 tons of the Earth’s crust. To satisfy the global hunger for gold, worldwide gold production climbed to an all-time high of more than 3,661 tons in 2024, which also represented an increase of 0.5% on the previous year.

At the end of 2024, the total amount of all the gold ever mined stood at just over 216,265 tons. This means that just under 1.7% of this total was mined in 2024 alone, a fact which impressively underscores the continuing popularity of this precious metal. And since gold is virtually indestructible, all this mined gold still exists. Such a quantity may sound like a huge amount, but a simple visual illustration may help to put this into perspective: If all the gold ever mined were stacked, one edge of the resultant cube would not even stretch to a length of 22.40 metres.

A look at the so-called stock-to-flow ratio is revealing. This is a metric applied to measure the scarcity of a raw material. The ratio shows how many years it would take to double the stock of the respective raw material – always assuming a constant production volume. This value is calculated by dividing the annual gold production by the total gold reserves – i.e., all the gold ever mined. Based on the figures quoted above, this results in a value of approximately 59, meaning it would thus take 59 years to double the current gold reserves – again assuming a constant production volume. This high stock-to-flow ratio – silver, an equally sought-after precious metal, has a ratio 50% lower, while platinum has a ratio of just one – can be interpreted economically as follows: Gold is well suited as a store of value because it is rare and thus harder to accumulate, while the total stock of gold increases very slowly.