Gold and Precious Metals: Physical ETC or Miners? How to Invest Sensibly

Warren Buffett said of gold: we dig it out of the ground, then bury it again in a vault and pay people to guard it. That sounds absurd — and yet gold sits in portfolios of managers worldwide, central banks hold trillions in it, and gold ETCs are among the most traded products on earth. What does that say about gold as an investment?

Physical ETCs vs. synthetic products

The most intelligible way to own gold through a stock exchange is via physical gold ETCs. These are debt instruments backed by physical gold bars stored in bank vaults — typically HSBC or JPMorgan in London or Zurich.

SPDR Gold Shares (GLD) is the world's largest gold ETC with assets over 50 billion dollars — it trades on the NYSE. TER is 0.40 %. For EU investors a suitable UCITS alternative is the iShares Physical Gold ETC (IGLN, quoted in USD, or SGLN in USD on Xetra) with TER 0.12 %. It holds physical gold bars and is audited.

Synthetic gold ETCs also exist — they are backed by derivatives, not physical metal. They carry counterparty risk from the issuer. For most investors, physical ETCs are strongly preferred.

Gold miners: Newmont and Barrick as leverage on gold

Newmont Corporation (NEM) is the world's largest gold producer. It mines on four continents and pays a dividend linked to the gold price. Gold miner equities are leveraged instruments — if the gold price rises 10 %, Newmont's shares may rise 20–30 %, because fixed mining costs do not change but the entire price increment goes to profit.

Barrick Gold (GOLD) is the second-largest player with a strong presence in Africa. Both companies are going through sector consolidation — acquisitions of smaller producers are common. Investing in miners adds operational risk: poor management, geological problems, political risk in host countries, fluctuating energy costs.

Silver, platinum, palladium: less transparent markets

Silver is a hybrid of industrial and precious metal — part of its demand comes from photovoltaics and electronics. That makes it more volatile than gold and harder to predict. Platinum and palladium are dependent on the automotive industry (catalytic converters), which is cyclical exposure.

For investors who want precious metals as insurance, gold is the most intelligible and most liquid choice. A small allocation to silver makes sense for those with a specific thesis about photovoltaics or industrial demand.

What role does gold play in a portfolio

Gold is not a return component of a portfolio. Historically over the past 30 years it has earned less than equities and even less than bonds in nominal terms — but with low correlation. That is precisely why some investors hold it: not for the return, but for diversification.

A 5–10 % allocation in a portfolio is discussed in the professional literature as reasonable. More than 15 % is usually a bet on a specific negative scenario (hyperinflation, systemic crisis), not part of a balanced strategy.

• Gold yes: as insurance, small share, physical ETC
• Gold no: as the primary return component, as a substitute for equities or bonds
• Miners: meaningful for those who want leverage on the gold price and accept higher volatility

More on building a portfolio in the article how to build your first portfolio. This is not investment advice; every investor's approach depends on their own situation and risk tolerance.

Physical gold outside ETFs: real safety or an illusion?

Some investors insist on physically owning gold coins or bars — no counterparty risk, nothing collapses in online systems, you keep it at home or in a safe. That is a legitimate argument in extremely negative scenarios. In a normal investment environment, however, physical gold has its own disadvantages: you must store it (costs), insure it (costs), and selling is not as instant as selling an ETC.

For most medium-term investors the combination of a physical ETC (SGLN or IGLN) is the most practical solution: immediate liquidity, a physically backed product, low TER of 0.12 %, UCITS regulation. Physical bars or coins make sense as a supplement for those who genuinely plan for a systemic crisis scenario — not as the primary means of gold exposure.

Gold, inflation and real rates: why the correlation is not direct

Gold is often cited as protection against inflation. Historical data are less clear-cut: in the 1970s gold protected against inflation excellently. In the 1980s and 1990s it stagnated even though inflation existed. The more telling indicator than inflation itself is real interest rates — rates adjusted for inflation.

When real rates fall (nominal rates low, inflation high), gold historically rises because the "opportunity cost" of holding non-yielding gold decreases. When real rates are high (as in 2022–2023), gold loses attractiveness relative to bonds. An investor watching gold should primarily track the movement of real yields on US TIPS, not inflation alone. This is not investment advice.

Central banks and gold: the geopolitical demand thesis

After 2022 and the freezing of Russian foreign-currency reserves, central banks of emerging economies began significantly increasing their gold reserves. China, India, Poland and Turkey bought gold systematically and in record volumes. This demand is less visible than retail speculation but structurally more significant — central banks do not buy on leverage and do not sell at the first downturn.

Geopolitical diversification away from the dollar is a real thesis that gives gold demand secular support regardless of the inflation cycle. For a long-term investor this is one of the arguments for maintaining a small gold allocation even when real rates are high and gold's short-term appeal is waning.

Gold as portfolio insurance: how to practically incorporate it

If you decide to hold gold in your portfolio, the practical question is: how and how much. Adding a gold ETC such as SGLN or IGLN is the simplest route — low TER, physically backed, UCITS. A 5 % allocation is a discreet presence that improves the portfolio's Sharpe ratio in crisis scenarios without significant drag on returns in a standard environment. A 10 % allocation is a deliberate insurance component. Anything above that is more a macro-economic bet than insurance.

Add gold miners such as Newmont or Barrick only if you want active leverage on the gold price and can manage higher volatility and the specific operational risks of mining. For a passive investor a physical ETC is always the cleaner solution. The correct Czech tax treatment of ETCs depends on the holding period — consult a tax adviser, as ETCs are subject to different rules from physical gold coins or bars.