Investmentsmaidav Basics
What Role Gold Can Play in a Portfolio
No interest, no dividend and yet in demand for centuries: why investors hold gold and which forms of investment exist.
Gold pays no interest and no dividends, and yet private individuals and central banks alike have held on to it for generations. The reason lies less in any regular income than in its characteristics: gold is scarce, can be traded worldwide and does not depend on the solvency of a debtor. This article explains which roles gold can play in a portfolio, in which forms it can be held and what to bear in mind regarding taxes, costs and storage.
An asset without regular income
Buying gold means acquiring a commodity, not a claim to payments. The return arises solely from a possible rise in price. This sets gold fundamentally apart from shares, which give you a stake in a company's profits, and from bonds, which pay interest. In periods of high interest rates this difference carries more weight, because investors forgo interest income they could earn elsewhere. Economists call this opportunity cost.
The lack of income is, at the same time, the reverse side of a strength. Physical gold is not a promise to pay by a state, a bank or a company and therefore cannot default in the way a debtor can. Over long periods it has preserved its value against many currencies, albeit with considerable fluctuations at times and long phases without any increase in value. The article How inflation changes purchasing power explains how rising prices affect money itself.
For investors in the euro area, a second factor comes into play. Internationally, gold is usually traded in US dollars per troy ounce, a unit of weight of around 31.1 grams. The value of a gold investment in euros therefore depends not only on the gold price but also on the exchange rate. If the euro appreciates against the dollar, gold holdings can lose value in euro terms even though the dollar price stays the same; in the opposite case, they gain.
Why gold is in demand in uncertain times
In periods of economic or political uncertainty, demand for gold often rises. It is regarded as a safe haven because it is recognised worldwide and traded independently of individual financial systems. In a portfolio, this can serve a diversification function: gold often moves differently from shares and bonds, which can dampen fluctuations in overall wealth. This relationship is not reliable, however; it changes with the period under review and the market phase.
Central banks also hold gold as part of their currency reserves. According to its annual accounts, the Deutsche Bundesbank held around 3,350 tonnes of fine gold in bars as at 31 December 2025, stored in Frankfurt am Main, New York and London. This makes Germany's holdings among the largest in the world. For private investors this is not a signal to buy, but it shows that gold has retained a reserve function in the modern monetary system.
Bars, coins and exchange-traded products
Physical gold comes as bars in sizes ranging from a few grams to one kilogram and more, and as bullion coins. In the European Union, investment gold is exempt from VAT. In Germany this is governed by Section 25c of the German VAT Act (UStG): the exemption covers bars and wafers with a fineness of at least 995 thousandths, and gold coins with a fineness of at least 900 thousandths that were minted after 1800, are or were legal tender in their country of origin and are normally sold for no more than 80 per cent above the value of their gold content. The exemption does not apply to jewellery.
If you do not want to store gold yourself, you can use exchange-traded products that track the gold price. In Europe these are generally not funds but debt securities issued by a single issuer, often referred to as ETCs. Physically backed variants are secured by gold held in storage, and some also give holders a claim to delivery. Unlike with a fund, no segregated pool of assets (Sondervermögen) is created, so it is worth looking closely at the terms on collateral.
Shares in gold mining companies form a risk class of their own. Their price is often linked to the gold price, but equally to production costs, management, location risks and general stock market sentiment. They may pay dividends, but they generally fluctuate considerably more than the metal itself.
How gains from gold are taxed
For tax purposes in Germany, physical gold does not count as a capital investment subject to the German capital gains tax (Abgeltungsteuer). Under Section 23 of the German Income Tax Act, gains from its sale are only taxable if no more than one year passes between purchase and sale; after that they are tax-free. Within this period, your personal income tax rate applies, together with an exemption limit: if the total gain from private sale transactions in a calendar year is below 1,000 euros, it remains tax-free, but once that limit is reached, the entire gain is taxable.
Germany's Federal Fiscal Court (Bundesfinanzhof) has set out guidelines for exchange-traded gold products. In its ruling of 12 May 2015 (VIII R 35/14), it decided that gains from exchange-traded bearer bonds carrying a claim to delivery of physical gold are not investment income, at least where the issuer must invest the capital almost entirely in gold. In its ruling of 16 June 2020 (VIII R 7/17), it confirmed this for securities under which investors can demand the sale proceeds instead of delivery. Products that merely promise a cash amount linked to the gold price, by contrast, generally fall under the capital gains tax.
Spread, storage and authenticity
With physical gold, the buying and selling prices differ. The spread is usually smaller for large bars than for small denominations and coins, because production costs per gram fall as size increases. Then there is storage: a bank safe deposit box, a safe of your own or custody with a service provider all cost money, and household contents insurance often covers precious metals only to a limited extent. For cash payments of 2,000 euros or more, the seller must establish the customer's identity under the German Anti-Money Laundering Act (Geldwäschegesetz).
There are recognised standards for authenticity. In the wholesale market, the London Good Delivery standard of the London Bullion Market Association is authoritative, and the Bundesbank also holds its bars to this standard: a fineness of at least 995 thousandths, a weight between 10.9 and 13.4 kilograms, and stamped details of the manufacturer, fineness, year of manufacture and bar number. For smaller bars, many buyers look for comparable markings showing weight, fineness and serial number.
| Purchase price of a gold bar | €10,000 |
|---|---|
| Buy-back price on the same day (assumption: 4 % lower) | €9,600 |
| Immediate gap | €400 |
| Storage costs (assumption: €120 a year, five years) | €600 |
| Sale proceeds needed to avoid a loss after five years | €10,600 |
| Required rise in the buy-back price | around 10.4 % |
| Tax on a sale after more than one year | €0 |
All figures are invented, rounded assumptions. The example shows that the spread and storage costs first have to be offset by a rise in price before any gain arises.
Gold pays no interest, but nor does it depend on the promise of a debtor.
Gold can take on a role of its own in a portfolio: as a store of value without debtor risk and as a building block that often moves differently from shares and bonds. It does not replace regular income or a share in economic growth. How large an allocation might be depends on goals, investment horizon and appetite for risk, and can only be answered individually. If you would like to see how the purchasing power of an amount changes over the years, you can use the purchasing power calculator.
Frequently asked questions
Which gold coins count as investment gold?
Under Section 25c of the German VAT Act, gold coins must have a fineness of at least 900 thousandths, have been minted after 1800, be or have been legal tender in their country of origin and normally be sold for no more than 80 per cent above the value of their gold content. If a coin meets these conditions, its supply is exempt from VAT.
How are exchange-traded gold products taxed?
That depends on how they are structured. If the security carries a claim to delivery of physical gold and the issuer must invest the capital almost entirely in gold, Germany's Federal Fiscal Court treats gains in the same way as for physical gold, meaning they are tax-free after more than one year. Products with a purely monetary claim generally fall under the German capital gains tax.
Why do I get less when I sell than I paid when I bought?
There is a spread between the purchase and buy-back prices that covers the costs of trading, testing, storage and resale. It is usually smaller for large bars than for small bars or coins. For investors, this means the gold price first has to rise by the amount of this spread before a sale is possible without a loss.
How much gold does the Bundesbank hold?
According to the Bundesbank's annual accounts, it held around 3,350 tonnes of fine gold in bars as at 31 December 2025. The gold is stored in Frankfurt am Main, at the Federal Reserve Bank of New York and at the Bank of England in London. A little over half of the holdings are kept in Frankfurt.
Terms
- Investment gold
- Gold in bars or certain coins whose supply is exempt from VAT under Section 25c of the German VAT Act (Anlagegold).
- ETC
- Exchange-traded commodity: an exchange-traded debt security that tracks the performance of a commodity such as gold.
- London Good Delivery
- The London Bullion Market Association's standard for wholesale gold bars, with a specified fineness, weight and set of markings.
Sources
- § 23 Einkommensteuergesetz, Private Veräußerungsgeschäfte (in German)Bundesministerium der Justiz, gesetze-im-internet.de
- § 25c Umsatzsteuergesetz, Besteuerung von Umsätzen mit Anlagegold (in German)Bundesministerium der Justiz, gesetze-im-internet.de
- Urteil vom 12. Mai 2015, VIII R 35/14 (in German)Bundesfinanzhof
- Annual Report 2025, Annual accounts of the Deutsche Bundesbank for 2025Deutsche Bundesbank
- Bundesbank plans to relocate part of its gold reservesDeutsche Bundesbank
Image: illustration, created with AI.
