The costs of investing in gold

Premiums, spreads, fund fees, broker fees and currency conversion, explained with an example.

The price you see in the news is the spot price. What you actually pay and receive is almost never that number. Understanding the costs avoids surprises and helps you compare options.

Costs of physical gold

• Purchase premium: what you pay above spot. It covers fabrication, distribution and the dealer's margin, and is usually proportionally higher on small pieces.
• Sale discount: how far below spot you're paid when you sell.
• Spread: the two combined. It's how much the price has to rise just for you to break even.
• Shipping and insurance, if you buy remotely.
• Storage, if you don't keep it yourself.
• Taxes, depending on the country and product.

Costs of gold ETFs

• Expense ratio: the fund's annual fee, deducted automatically from the fund's value.
• Broker commission on each purchase and sale.
• Bid–ask spread on the exchange, usually small for high-volume funds.
• Currency conversion, if you convert your local currency to dollars or euros to buy.
• Other broker fees: custody, inactivity, deposits and withdrawals.

An example with round numbers

These numbers are made up purely to illustrate. Suppose a coin's spot value is 1,000. The dealer sells it to you for 1,050 (a 5% premium) and would buy it back today for 970 (3% below spot). If you buy and sell on the same day, you lose 80, or 7.6% of what you paid. To break even, gold would have to rise enough to cover that spread.

With an ETF the spread is usually much smaller, but you pay the annual fee for as long as you hold it, plus your broker's fees.

Always ask

1. What's the total price, all-in?
2. What would you buy it back for today?
3. What annual or monthly fees are there?
4. What does converting my currency cost?

FAQ

Why do small pieces have a higher premium?

Because the cost of making and selling them doesn't fall in proportion to their weight.

Which is cheaper: physical gold or ETFs?

It depends on the amount, the time frame and your broker's fees. Over short periods the physical spread usually weighs more; over long periods the ETF's annual fee does.