FIFO Principle in Precious Metal Sales

The FIFO principle (First In, First Out) is a consumption sequence rule applied in German tax law when calculating disposal gains from physical precious metals. Anyone who buys gold in several tranches at different times and prices and later sells part of it must assume, for the purpose of tax profit calculation, that the units purchased first were also sold first – regardless of which coins or bars physically change hands.

Significance for the Speculative Holding Period

Under § 23 (1) no. 2 EStG, gains from the sale of private assets – which include physical precious metals – are subject to income tax if less than twelve months have elapsed between purchase and sale (speculative holding period). The FIFO method determines which purchase date a sale is attributed to:

1. The first purchase is deemed to have been sold first → its acquisition date and price are used.
2. If more than one year has elapsed between this first purchase and the sale, the gain is tax-free.
3. If the first purchase falls within the one-year period, the gain falls within the tax-free allowance of €1,000 (from 2023; up to 2022: €600) or is taxable.

Calculation Example

Purchase 1: 10 oz gold  on 01/03/2023  at €1,800  = €18,000
Purchase 2: 10 oz gold  on 01/09/2024  at €2,400  = €24,000
Sale:        5 oz gold  on 15/04/2025  at €2,800  = €14,000

FIFO → cost basis: 5 × €1,800 = €9,000
Gain: €14,000 – €9,000 = €5,000
Holding period Purchase 1 → Sale: > 12 months → tax-free

Since the five ounces are attributed for tax purposes to the first purchase (March 2023), the holding period exceeds the one-year limit – the gain remains tax-free. If FIFO were not applicable and the more recent units (Purchase 2, September 2024) were used instead, the gain would be taxable.

Practical Notes

• Documentation requirement: Every purchase should be documented with date, quantity, cost price, and dealer invoice so that the FIFO attribution can be evidenced in the event of a dispute.
• Collective custody: For bars or coins that are not individually numbered, FIFO is the standard method accepted by the tax authorities; alternative methods (e.g. LIFO or average cost method) are generally not permitted for private precious metals under German tax law.
• Mixed holdings: Different types (gold ounces, silver bars, etc.) are valued separately under FIFO – cross-category offsetting is not permissible.
• Investment gold VAT-exempt: Investment gold is exempt from VAT under § 25c UStG; the FIFO principle relates exclusively to the income tax side.

Historical gold prices can help reconstruct the original cost basis if original documents are missing. You can estimate the expected tax impact of a sale in advance with the tax estimator.

Note: This article is for general information purposes only and does not constitute tax or investment advice. For individual tax assessment, please consult a tax adviser.

In Brief

The FIFO principle automatically attributes the oldest holdings to the tax authorities upon the sale of precious metals – those who buy long-term and in tranches benefit from this, because older purchases have often already exceeded the tax-free one-year holding period.