There is more than one way to acquire exposure to gold, the most direct of which is the purchase of gold bullion. Other methods, such as ownership of shares in public mining companies, are more indirect. Exchange-traded funds (ETFs) that have gold as their underlying asset are the most effective way for retail investors to get a piece of the action because of the low transaction costs involved.
While some funds make direct investments in the metal itself, others instead manage a portfolio of stocks related to the gold industry. ETFs are useful because they offer instant diversification at a low cost, making them very convenient. Take a look at some of the gold exchange-traded funds that are held by the most investors.
Top gold ETFs
Gold is a popular asset among investors who want to protect themselves against dangers such as inflation, turbulent market conditions, and political unrest. In addition to investing in gold bullion itself, one can also gain exposure to the precious metal through the purchase of exchange-traded funds (ETFs) that have gold as their underlying asset or through the purchase of gold futures contracts. Both of these options are available.
When compared to other options for investing in gold, such as gold futures or shares of gold-mining companies, exchange-traded funds (ETFs) are seen by some investors as a more liquid and cost-effective investment vehicle. However, the price of gold is subject to large fluctuations, which means that the ETFs that track it will also be subject to significant swings.
In the United States, there are ten exchange-traded funds (ETFs) that are solely dedicated to investing in gold. This number does not include leveraged or inverse funds, as well as funds that have an AUM of less than $50 million (AUM). As opposed to investing in gold mining companies, these funds put their money into gold bullion or futures contracts rather than gold mining companies.
As of October 15, 2022, the price of gold, as measured by the standard S&P GSCI Gold Index, has a total return of -2.0% over the past year. This is a slightly better performance than the S&P 500’s one-year total return of -3.0%. The SPDR Gold MindShare’s Trust (GLDM) fund, the abrdn Physical Gold Shares ETF (SGOL), and the iShares Gold Trust Micro (IAUM) fund are all in a three-way tie for the title of best-performing gold exchange-traded fund (ETF) based on performance over the past 12 months.
Following is an analysis of the top three gold ETFs currently available. All of these figures are current as of August 16th, 2022. The top holdings that are listed for each ETF do not include cash holdings or holdings that were purchased with the proceeds from securities lending, with the exception of exceptional circumstances, such as when the cash portion is unusually large. This is done so that the focus can remain on the investment strategy of the funds.
Bank rate selected its top funds based on the following criteria:
- S. funds that appear in ETF.com’s screener for gold ETFs
- Assets under management of at least $1 billion
- Expense ratios under 0.60 percent
SPDR Gold Trust (GLD)
GLDM’s primary objective is to replicate the performance of the gold price minus the fund’s operating expenses. Because it is organized as a grantor trust, the exchange-traded fund (ETF) may offer investors some degree of protection from tax liability. GLDM also has a lower expense ratio than many of the other alternative gold commodity ETFs, similar to how SGOL and IAUM on our list do (for more information, see further down). As a standard, GLDM utilizes the Gold Price as reported by the London Bullion Market Association (LBMA). Investors can purchase gold in a manner that is both convenient and efficient thanks to this investment vehicle. The fund only ever invests in gold bullion as its holding of choice.
One of the most widely held exchange-traded funds (ETFs) is GLD. Because the fund purchases actual gold, its performance has a strong relationship to the price of gold on the spot market.
- Fund issuer: State Street Global Advisors
- 2022 YTD performance: 1.85 percent
- Five-year annual return: 7.93 percent
- Assets under management: $64.1 billion
- Expense ratio: 0.40 percent
iShares Gold Trust (IAU)
This fund invests in gold bars that are stored in vaults all over the world in order to track the spot price of gold, which is another popular option. However, the expense ratio of this investment is lower than that of GLD.
In contrast to the funds described above, IAUM is organized as an ETF. It does business on the NYSE Arca and uses the Gold Price as determined by the LBMA as a point of reference. IAUM, just like the other gold funds on our list, can be used to protect a portfolio of securities from the effects of inflation while also serving as a means of diversification. Gold bullion is the only asset that IAUM currently possesses.
- Fund issuer: BlackRock
- 2022 YTD performance: 1.92 percent
- Five-year annual return: 8.10 percent
- Assets under management: $31.9 billion
- Expense ratio: 0.25 percent
VanEck Vectors Gold Miners ETF (GDX)
In the world of exchange-traded funds (ETFs) that track the mining industry, GDX is among the most widely held. The fund has ownership stakes in every significant player in the mining industry. Some of these companies mine for other types of metals in addition to gold, including silver and copper.
- Fund issuer: VanEck
- 2022 YTD performance: 2.2 percent
- Five-year annual return: 8.26 percent
- Assets under management: $13 billion
- Expense ratio: 0.51 percent
VanEck Vectors Junior Gold Miners ETF (GDXJ)
This fund invests in small-cap mining companies located outside of the United States that derive at least half of their total revenue from the sale of gold and silver. Canada is home to approximately sixty percent of these different businesses.
- Fund issuer: VanEck
- 2022 YTD performance: -3.96 percent
- Five-year annual return: 5.48 percent
- Assets under management: $4.1 billion
- Expense ratio: 0.52 percent
GraniteShares Gold Trust (BAR)
This exchange-traded fund makes direct investments in gold that is stored in a vault in London and is managed by ICBC Standard Bank; as a result, its price should track the spot price of the precious metal in a reasonably close fashion.
- Fund issuer: GraniteShares
- 2022 YTD performance: 2.04 percent
- Three-year annual return: 13.07 percent (inception date was 08/31/2017)
- Assets under management: $1 billion
- Expense ratio: 0.17 percent
SGOL is organized as a grantor trust, just like GLDM was, and its primary objective is to replicate the performance of the price of gold bullion after deducting the fund’s expenses. As was previously mentioned, it also has lower expenses compared to a wide variety of other gold ETFs; however, it is not quite as cost-effective as SGOL. The only asset that the fund actually owns is gold bullion, which is kept in secure locations in both London and Zurich.
Why should one buy gold?
Diversification is the most common motivation for individual investors to purchase gold ETFs. Having a diverse portfolio of investments helps mitigate the danger of concentrating too much of one’s holdings in a single asset.
Throughout the course of history, the stock market and gold prices have had a weak relationship with one another. For instance, the price of gold increased by 2 percent during the global financial crisis that occurred in 2008, while the S&P 500 index fell by 37 percent.
Gold is a good hedge against inflation in addition to being a diversification asset because its value has a history of rising in tandem with the general rise in the cost of living.
In times of political or social unrest, investors frequently seek refuge in gold as a safe haven, leaving behind assets with a higher degree of volatility in their portfolios.
Gold has a proven track record of acting as a valuable defensive store of value as well as a portfolio diversifier that is highly effective.
The drawbacks associated with investing in gold
Even though gold has maintained its value over the course of the years, the commodity is still subject to unpredictable price swings in the short term.
In contrast to stocks, the value of gold can be more difficult to ascertain, according to the viewpoint of some investors. There are no metrics to analyze regarding earnings or cash flow at this time. In a similar vein, gold is a non-yielding asset, making it unattractive to investors who are seeking passive income such as dividends.
The value of many gold funds fell in 2021 as investors sold gold in order to purchase riskier assets such as stocks and cryptocurrencies, which were experiencing strong growth at the time. As of now, in 2022, the stock market has officially entered a bear market, which has resulted in investors gradually returning to the metal in search of stability. Gold returns have slowly started to pick up. Investors should be wary of the swings in valuation that occur as a result of changes in market conditions.
The profits you make from selling gold ETFs could be taxed as collectibles rather than as regular investments, which could result in an increase in the overall tax rate you are required to pay depending on the other types of assets you own. These regulations only apply to holdings that are kept in accounts that do not qualify for tax benefits, such as a 401(k) or an IRA.
Investing in gold through exchange-traded funds
Consider whether you want exposure to physical gold or to public companies that are involved in gold mining when choosing gold exchange-traded funds (ETFs). These two categories of assets each have their own unique risk profile.
Here are four steps that can serve as a guide for you as you plan your investment strategy:
- First, figure out what it is you want to accomplish with your money; this will help you determine the best investments to make. A person who is putting money away to buy a second home, on the other hand, will employ a different investment strategy than a parent who is putting money away for their child’s college education. Therefore, you should always base your decisions on the financial goals you want to achieve.
- Investigate the gold funds: When choosing commodity exchange-traded funds (ETFs), it is important to take into consideration a number of different factors, including the fund’s performance, expense ratios, top holdings, and assets under management. A fund’s prospectus is the document where investors can locate this information.
- Outline your asset mix: Before you put any money into the market, you should take stock of all of your possessions and then adjust your portfolio accordingly. Keep in mind that maintaining a diversified portfolio is essential.
- Be aware of what you possess: You can take charge of your finances and make any necessary adjustments by performing routine checks on your investments and doing so on a periodic basis. Make use of any free resources that your broker provides, such as scheduling a meeting with a financial planner, and make sure you always ask questions. In the end, there is no such thing as an investment that requires no involvement on your part.
Gold has been held in high esteem throughout history as a representation of both wealth and power, and this status has not changed. Gold acts as a portfolio hedge for investors, protecting them from the effects of market volatility as well as geopolitical unrest. Additionally, as fears of inflation grow, the value of gold may continue to rise.
Here is a list of some of the best gold exchange-traded funds (ETFs) for hedging.
Gold is the ultimate asset that can be used as a safe haven. Although its short-term volatility may make it unreliable as a tool against inflation, its long-term stability makes it an effective means of wealth preservation. Since the beginning of human history, people have been drawn to this shiny metal as a way to both measure wealth and as a backing for a variety of different currencies. Gold continues to be highly sought after by nation-states that are looking to build up their currency reserves, as it provides investors with protection against geopolitical and socioeconomic upheavals and is also highly sought after by investors.
Gold also has a low correlation with both stocks and bonds, providing a tangible diversification benefit during periods in which stocks and bonds fall together in tandem due to rising interest rates. Gold has only dropped by 7% so far this year as of the 20th of July, in contrast to the S&P 500’s loss of 16.9% over the same time period. In 2022, investors who want to hold gold in their portfolios but do not want to pay a high price for the privilege can buy these seven gold exchange-traded funds, or ETFs.
Gold shares issued by SPDR (ticker: GLD)
GLD is the physically backed gold fund that is the world’s largest and most liquid fund of its kind. GLD made its debut on the New York Stock Exchange in 2004, and since then it has amassed assets under management (also known as AUM) totaling $55.6 billion.
This amount is equivalent to more than 32 million ounces of gold bullion being held in trust. When you buy a share of GLD, you are acquiring a fractional, undivided ownership interest in a corresponding slice of that hoard. When compared to buying physical bullion, investing in GLD is a simple and cost-effective way to gain exposure to the gold market because there are no costs associated with storage, insurance, or large bid-ask spreads.
Because GLD is so big and liquid, the exchange-traded fund (ETF) has become very popular for trading and has a robust options chain as a result of this popularity. At the moment, the annual expense ratio for holding GLD is 0.40%, which means that an investment of $10,000 will cost approximately $40 in fees.
SPDR Gold MiniShares (GLDM)
GLD may be the largest and most liquid gold exchange-traded fund, but it is not exactly the most cost-effective option. Buy-and-hold investors may be turned off by the fund’s relatively high expense ratio of 0.40%, whereas traders may find the low bid-ask spread and options chain to be attractive features of the fund. In response to this, SPDR came out with GLDM, which is a “mini” version of GLD. The exposure provided by GLDM to a vault containing physical gold bullion is identical to that provided by GLD.
In the same way that a share of GLD does, a share of GLDM represents a fractional, undivided beneficial ownership interest in the aforementioned gold deposits. Even though GLDM has a lower AUM and more limited liquidity, buy-and-hold investors will still find it to be more than adequate. GLDM has a more affordable price per share, and its expense ratio sits at just 0.10 percent right now. This price for gold ETFs is currently the lowest available on the market.
Gold investment company iShares (IAU)
Another well-known gold exchange-traded fund (ETF) offered by BlackRock, which is one of the largest asset managers in the world, is IAU. IAU follows the London Bullion Market Association (LBMA) Gold Price Index in the same way that GLD does, providing investors with a passive way to gain exposure to the daily spot price of gold. This is accomplished by the IAU by storing approximately 516 tons, which is equivalent to 16 million ounces, of gold bullion in a safe location.
For investors, purchasing a share of IAU is a more convenient option than buying a comparable quantity of physical gold, ensuring it, storing it, and analyzing its purity before selling it. To this day, IAU has approximately $30 billion in assets, which places it ahead of GLDM but behind GLD in terms of total value. IAU is currently priced in the middle of GLD and GLDM and has an expense ratio of 0.25%, which results in an annual fee of $25 for every $10,000 invested in the fund.
Physical Gold Shares ETF Developed by Aberdeen (SGOL)
The title of cheapest gold ETF had previously been held by SGOL, which charges a management expense ratio of 0.17% at the present time. However, GLDM recently cut its expense ratio to just 0.10%, making it the clear winner. SGOL, just like the ETFs that came before it on this list, is a physically backed gold trust, and its deposits are kept in safe vaults in both Zurich and London. The vault currently stores more than 3,500 bullion bars with a combined weight of approximately 1.4 million ounces of gold.
It is inspected twice yearly by an independent commodity auditor, who chooses at random which of the two visits to conduct. Since its launch on September 9, 2009, SGOL has attracted approximately $2.6 billion in AUM in assets under management. The price of the ETF is also determined by the gold price index maintained by the LBMA.
Gold trust issued by GraniteShares (BAR)
The difference between SGOL and BAR is minimal. Both exchange-traded funds (ETFs) hold LBMA gold bars in London vaults, are audited twice a year (with one of the audits being random), and have an expense ratio of 0.17 percent. The difference is that BAR’s fund manager is more transparent than other managers. On a daily basis, GraniteShares uploads to the website of the ETF a comprehensive listing of the gold bars that are held by BAR.
The following information is included on this list: the precise serial ID, country of origin, fineness, weight, packing ID, quantity, and location of each gold bar held. Investors who prefer to maintain a closer relationship with their gold holdings and want the security of knowing that their money is backed by an asset may find this option more appealing.
Ultra Gold Shares of ProShares (UGL)
Investors who want to trade gold frequently might look into leveraged exposure in order to better enhance their gains (but this can also magnify losses). A leveraged exchange-traded fund (ETF) like UGL is an alternative method to using margin, gold futures, or GLD options. The Bloomberg Gold Subindex serves as UGL’s underlying benchmark, and the company’s goal is to generate a return that is twice as good as the daily performance of that index.
This is accomplished by the ETF through the utilization of swaps, which are intricate derivatives held with large third-party investment banks in the United States, in addition to cash collateral held for gold futures contracts. Because of the high degree of volatility exhibited by UGL, the asset should not be held for more than one day at a time.
Over the course of time, compounding returns (and losses) can cause results that are different from its target of two times per day for leverage. UGL also has a relatively high expense ratio, coming in at 0.95% of its revenue.
Efficient Gold Plus Equity Strategy Fund from Wisdom Tree Investments (GDE)
Gold exchange-traded funds, also known as gold ETFs, are a type of exchange-traded fund that provide investors with exposure to gold without requiring the investors to directly buy, store, and resell the precious metal. Some gold exchange-traded funds (ETFs) follow the price of gold very closely, while others invest in companies that are involved in gold mining.
As is the case with other kinds of ETFs, the company that issues gold ETFs either purchases stock in gold-related companies or buys and stores gold bullion on its own. Investors purchase shares in the fund, the value of which rises and falls based on changes in the underlying price of gold or the value of the company’s stock.
Gold is commonly thought of as a “safe haven” investment due to the fact that its price tends to rise when stock markets are performing poorly. In the months following the end of the Great Recession in September 2011, the price of gold reached its all-time high, reaching nearly $1,900 per ounce. In the most recent few months, the price of gold has been getting dangerously close to breaking that record.
When adding gold to an investment portfolio, one of the most common issues that arises is a reduction in the allocations to other assets. When investors add gold to their portfolios, they are forced to reduce their allocations of other assets, such as stocks or bonds, which can result in lower total returns. This problem is solved by GDE through innovative applications of gold futures. For every one hundred dollars that is put into the ETF, ninety dollars is invested in 500 large-cap U.S. stocks, and the remaining ten dollars is put into U.S. Treasurys, which are used as collateral for gold futures contracts.
Leverage is provided by these gold futures, which magnifies the value of gold exposure from $10 in collateral to $90 in total value. The end product is a cutting-edge portfolio that is leveraged 1.8 times and is composed of 90% stocks and 90% gold. Because the leverage is not reset on a daily basis, GDE is designed to be held for an extended period of time, in contrast to the majority of leveraged ETFs. The expense ratio of the ETF is only 0.20%, making it a reasonably affordable investment option.