Four Ways to Own GoldStart here

Bars, an ETC, a future, and mining shares. Four instruments described as gold exposure, of which only two behave like gold.

Four instruments, one word

Physical: the only version with no promise in it

• The entire argument for physical metal is that it has no counterparty. That is a real and specific property, and it is the only property that distinguishes it.
• The cost is everything else: dealer spreads on purchase and sale that dwarf any ongoing charge, storage, insurance, verification on resale, and the practical problem of selling part of a bar.
• Stored in someone else's vault, allocated and audited, it is close to the ETC case — with a counterparty again, just a different one. Unallocated storage is a claim on the storer, not metal.
• The honest summary: physical solves exactly one problem, at a cost that is worth it only if that problem is the one you actually have.

The ETC: a note, not a fund

• Gold is a commodity, so in most regimes a diversified fund cannot hold only gold. That is why gold products are structured as exchange-traded commodities — debt securities — rather than as funds.
• The good ones are fully secured on allocated metal held by an independent custodian, with published bar lists. The security arrangement is the entire question, and it is answerable from the prospectus.
• Ongoing charges are typically small, and the tracking is close because the underlying is a single homogeneous asset with no dividends to complicate it.
• The failure mode is the issuer plus the security package, not market risk. Read that section rather than the tracking chart — the wrapper analysis makes the general point.

The future: cheapest to hold, hardest to hold correctly

• A future is the cheapest large gold exposure — no ongoing charge, tight spreads, cleared counterparty.
• It must be rolled, and gold's curve is normally in contango because storage and financing are real. Rolling costs roughly the financing rate plus storage each year — the cost-of-carry calculator shows why contango is the default state rather than a market opinion.
• Contract sizes are large and margin is a daily obligation. A gold future is not a smaller version of an ETC; it is a leveraged position that must be managed.
• Best suited to institutional size and short horizons; poorly suited to a small long-term holding, where the roll mechanics dominate the cost saving.

Mining shares: not a gold exposure at all

• A miner is an operating business whose profit is roughly the gold price minus a cost per ounce. That subtraction is leverage: a 10% gold move can move margins far more.
• Everything else about the business comes with it — jurisdiction risk, capital allocation, management quality, ore grades, labour, energy costs, and the equity market's mood on the day.
• The correlation to gold is positive and unreliable. Miners have underperformed the metal through periods when the metal rose, because the costs rose faster.
• They also pay dividends, which gold does not — a genuine difference in kind, and the reason some people prefer them for reasons that have nothing to do with the metal.
• The conclusion: mining equity is an equity sector with a gold-price factor. Treating it as a gold substitute is a category error, and it is the most common one in this comparison.

What each side understates

• Physical advocates understate the spread. A 3–5% round-trip dealer margin is a decade of an ETC's ongoing charge, paid immediately.
• ETC advocates understate the security package question, which varies more between products than the charges do.
• Futures advocates understate the roll, which is the dominant cost over any long holding.
• Miner advocates understate the operational risk, and describe leverage to the gold price as if it only worked upward.
• Everyone understates that gold generates no cash flow, which means its entire return is the re-rating term in the return decomposition — the one component with no anchor.

The checklist

• Why gold — an inflation view, a crisis hedge, or a no-counterparty holding? Only the third argues for physical.
• What is the all-in round-trip cost for my size and horizon?
• For an ETC: allocated or unallocated, and secured on what?
• For a future: what does the roll cost annually at current rates?
• For miners: am I comfortable owning an equity sector, because that is what this is?