Gold history

As a capital investment, gold belongs to the asset class of commodities. It is a precious metal and has been used for thousands of years to store value.

According to Thomson Reuters’ GFMS, at the end of 2011 around 1 trillion euros was held worldwide in the form of 32,500 tons of gold – a value that has been rising continuously ever since. In addition to institutional and private investors, state central banks also hold large stocks of gold as reserves. At the end of February 2018, the Federal Republic of Germany held 117 billion euros of a total of 166 billion euros in currency reserves in gold and gold receivables.


Gold was used from ancient times until the beginning of the 20th century to produce coins for payment transactions. Often the owners of gold were granted by law the right to exchange the precious metal for marketable money at central banks or state mints, which is why gold has always fulfilled a value-preserving function. In the age of metal currencies, a capital invested in gold meant a safe investment in liquid assets. As such, it was particularly popular among merchants and private individuals. Even when gold began to lose importance as a metal for coins during the world wars, its use as a financial investment continued to be handed down.

The end of the international gold price fixing for private individuals in March 1968, which prescribed USD 35 per troy ounce, changed the character of a gold investment. Since then, the precious metal’s quotations have been able to fluctuate freely, allowing both speculative gains and losses. Gold investments are particularly popular in times of high inflation rates, as was the case in the 1970s, for example. In the 1980s and 1990s, however, gold became less important as an investment, which is explained by the increased attractiveness of other asset classes. Nevertheless, investment gold traditionally plays an important role in the markets of Asia and the Arab states.

Why invest in gold?

Investing in gold typically means betting on a rising gold price, which on the one hand generates profit, and on the other hand secures the investments and maintains their value. Nevertheless, the precious metal is neither immune to inflation nor deflation. If gold is not fully correlated with other asset classes, it is ideally suited to diversify investment assets, i.e. to reduce risk as well as the fluctuation margin of the overall value of the investment portfolio.

Investment forms

Three different forms of gold investment are distinguished:

  • physical gold,
  • exchange-traded gold products, and
  • Shares in gold mining companies.

Physical gold

Physical gold can be acquired in the form of gold bars, bullion coins, jewellery gold and collector coins. Since the prices of jewellery gold and collector’s coins far exceed their actual material value, they are less suitable as capital investments.

According to the 2011 study conducted by the Steinbeis Research Center for Financial Services, 88% of German private individuals prefer gold bars or coins, while only 12% invest in gold-related securities.

There are also various options for storing physical gold:

  • private storage (e.g. in an in-house safe),
  • Safekeeping in a safe deposit box, and last but not least
  • Safekeeping in high-security vaults of banks or security companies.
  • If the gold is stored in the latter way, it is called vault gold.

Definition of “investment gold

According to EU Directive 98/80/EC, investment gold is defined as gold in plate or bar form, which has a purity of at least 995 thousandths and a weight accepted by the gold markets. Likewise, gold coins of a purity of at least 900 thousandths issued after 1800 and which were or are legal tender in their country of origin are considered investment gold, provided that their selling price is not more than 80% above the open market value of their gold content.

Bars are available in 1, 5, 10, 20, 50, 100, 250, 500, 1000 grams and one troy ounce, which corresponds to 31.1034768 grams. These bars are produced with a fineness of 999.9 ‰ In addition, the so-called “good-delivery-bar” with a fineness of 995 ‰ can be purchased. In the case of bars weighing less than 1 kg, the surcharge is higher than for heavier bars and sometimes amounts to more than 5%. Despite this, gold bars up to one troy ounce in weight, which are ordered as kinebars, have enjoyed great popularity among small investors since 1994. The latter are so called because there is a kinegram on the back of the bar, which certifies its authenticity.

Since 2012, so-called “table bars” with exact predetermined breaking points have also been on offer, which allow the gold bar to be partially resold.

Gold coins

Gold coins are also traded worldwide as an investment product. One of the best known investment coins is the Krugerrand, in the German-speaking world also in the spelling Krugerrand common. In contrast to other gold coins, which carry a nominal value, the Krugerrand has no nominal value. Coins offer the advantage that their authenticity is guaranteed by the state by minting them. They are also easier to handle than bullion gold. In addition, according to the EU directive, former circulation coins with a gold content of at least 900/1000 and produced after 1800 can be traded tax-free as investment gold.

Exchange traded gold products

These are gold price related securities which are normally traded on one or more stock exchanges. Exchange-traded funds or mutual funds, for example, can sometimes invest their assets in physical gold. In the case of funds offered in Germany, the proportion of physical gold may not exceed 30% of the investment volume. This is why gold ETFs, which are available in the USA or Switzerland, for example, are not available in Germany. However, Gold Exchange Traded Commodities (ETC) such as Xetra-Gold can be invested up to 100 % in gold.

In addition to the gold exchange-traded products just mentioned, certificates on the gold price or numerous other derivatives that are not covered by physical gold are also available.

Shares in gold mining companies

Share certificates of gold mining companies or gold shares allowed indirect participation in rising gold prices. There are specific stock indices, for example the NYSE Arca Gold BUGS Index, which bundle share prices of large gold mining companies. Investment risk can be spread with the help of such exchange-traded funds that track these indices.

Taxation (in Germany)

Income tax

In principle, income from exchange-traded gold products and gold-related securities is subject to the final withholding tax. Direct investment in physical gold and direct investment in investment gold are excluded.

The one-year period must be observed when selling gold. If the gold is sold within one year of acquisition, the gains on sale are taxable at the individual income tax rate. After the one-year period, however, realised gains are exempt from tax. The same applies to vault gold, which is stored in central high-security vaults.

Value added tax

In accordance with Directive 98/80/EC of 12 October 1998, investment gold has been exempted from VAT in the EU area in order to make gold more attractive as a financial instrument.

Risks of a gold investment

Anyone who invests in gold bears first and foremost the market risk which, in the event of a falling gold price, entails a loss of value. A further risk is associated with mass sales by major central banks or many investors (panic selling), which is accompanied by a surprising increase in the supply of gold.

The demand for gold comes mainly from industry, jewellery producers and investors. Should it fall because, for example, gold is becoming less important as jewellery, the industry finds cheaper material alternatives or, for example, investors switch to other asset classes such as real estate, shares, etc., this would affect the value of gold and thus represent a risk.

Depending on how the gold is invested, other risks may also come into play: ownership risk, which is associated with the security of the custody, and counterparty risk, which can arise if a product provider is no longer available.

Since the price of gold is quoted in US dollars, there is also currency risk. Investors who invest in gold on a euro basis are therefore most pleased about a falling euro exchange rate, as this means an increase in the value of their gold holdings.


Whether gold is a good investment is viewed differently by investors. Warren Buffet, for example, takes a critical view of investing in gold, because in his opinion it is a dead investment that generates no returns.

Others, however, cite the price and price risk of a gold investment as points of criticism, especially in the case of a possible speculative bubble.

Last but not least, it is argued that gold investment for portfolio diversification purposes does not really make sense because of the frequent correlation of gold with other asset classes.

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