More people are investing in Gold. In 2020, an independent survey revealed that one in six Americans invested in gold or other precious metals while one in four seriously considered it. The reason for this is not far-fetched: gold has proven to be a reliable and safer investment, even during economic uncertainty.
There are a few ways to invest in gold, including buying gold ETFs. This article will guide you into the world of gold investment through exchange-traded funds (ETFs). The goal is to give you all the information you need to introduce this precious metal into your portfolio successfully and enjoy all the perks that come with this investment.
Ready to go? Let’s start with the key takeaways.
Key Takeaways
These are the crucial takeaways from this piece; it comes in handy for anyone who wants to capture all the major points without reading the entire article.
- The best Gold ETFs to consider are GLD, GLDM, IAU, SGOL, BAR, UGL, GOE, and SGDM.
- Gold is one of the most important precious metals in today’s society and plays a crucial role in the global economy.
- Investors use gold to preserve wealth, hedge against the dollar, diversify investments, or earn dividends.
- Gold exchange-traded funds (ETFs) are designed to invest most or all of their portfolio worth in gold or gold-related investments.
- These funds allow investors to invest in gold and earn income without trading the physical gold bullion or gold futures.
- Like other ETFs, Gold ETFs are relatively less expensive and more liquid. They also come in variable denominations and are ideal for all types of investors.
- To start investing in gold ETFs, find the right fund(s), analyze them, and proceed to buy from your broker or directly from the issuer.
What Are Gold ETFs?
We already know what ETFs are, but how about gold ETFs? Gold ETFs are exchange-traded funds designed to expose investors to the precious metal without the need to purchase, store, or resell it physically. They do this by tracking gold price directly or investing their portfolio worth (part or all) in companies in gold mining and other related industries.
So if you invest in gold by buying shares in a gold ETF, you do not own or hold any physical gold. Instead, you are investing in gold stocks that are similarly traded on the stock exchange like other individual stocks. Most investors prefer this because it is seamless and costs less while allowing them to earn the equivalent of the unit in cash instead of the actual metal.
Why Invest in Gold ETFs?
If you are wondering why more investors are adding gold ETFs to their portfolios, this section has some answers.
First, gold ETFs are commodity-based traded funds (commodity ETFs) that double as industry exchange-traded funds. Investors consider it an ideal investment strategy to expand their portfolio and expose it to multiple interrelated sectors like gold mining, manufacturing, transport, and more.
Second, laying your hands on the actual gold can be a bit of a hassle or a real challenge, depending on where you live. Gold exchange-traded funds, on the other hand, provide a more accessible and straightforward way to access and explore investment opportunities in the gold industry.
Third, investors can conveniently hedge inflation and fluctuating markets using gold ETFs. For instance, short-term gold ETFs come in handy to cut losses in the event of a sharp drop in the market price of gold.
Fourth, Gold ETFs are excellent defensive assets, thanks to the low correlation of gold with both stocks and bonds. They also provide a reliable diversification benefit, especially when bonds and stocks fall. To put this into perspective, Gold has performed better than the S&P 500 year to date, and during the 20 worst quarters for the S&P 500 Index, Gold outperformed by an average of 18.2%.
Lastly, the best Gold ETF comes with impressive tax benefits. Investors only have to pay the capital gain tax, allowing them to save more on taxes like securities transaction tax and value-added tax.
What Are the Best Gold ETF Options for You?
Now, let’s look at the eight best gold ETFs you can choose from in the current market;
The first gold fund on this list is the SPDR Gold Shares (GLD). It is the biggest and most liquid fund that is also physically backed. GLD was launched in 2004 and traded on the New York Stock Exchange for the first time in the same year. GLD reflects the performance of the price of gold bullion, as determined by the market forces in the daily over-the-counter gold market, less the Trust’s expenses. The underlying index here is London Bullion Market Association (LBMA) Gold Price PM.
The SPDR Gold Shares portfolio comprises only physical bullion. It is ideal for investors looking for cost-effective and convenient access to gold investment and track gold prices. The fund has returned 8.84% in the previous three years and 7.90% in the last five. In addition to the ease and flexibility of investment, the fund also attracts low investment costs. Its expense ratio is 0.40%.
SPDR Gold Minishares ETF (GLDM), like SPDR Gold Shares (GLD), is issued by State Street Global Advisors (SPDR). The fund’s investment objective is to replicate the performance of the price of gold bullion, less GLDM’s expenses. It also shares the same underlying index as GLD – the LDMA Gold Price PM. However, it is smaller than GLD; it has $4.7 billion worth of assets under management, compared to GLD’s $51 billion.
The SPDR Gold Minishares fund is relatively new, having been launched in June 2018. However, it has been an excellent performer, returning 8.8% in the previous three years and 9.5% since inception.
SPDR Gold Minishares ETF (GLDM)’s expense ratio is 0.10, making it much cheaper than GLD.
iShares Gold Trust (IAU) ETF is designed to offer investors exposure to the day-to-day movement of the price of gold bullion. The fund tracks the general performance of gold price. Investors can easily invest in physical gold through IAU while saving costs. It is also ideal for portfolio diversification and protection against inflation.
IAU’s net assets under management have grown to over $26 billion since its inception in January 2005. Regarding performance, it has rewarded investors with 8.6% and 7.6% average annual returns over the last three and five years, respectively. Its biggest performance was in 2020, returning 23.8% in that calendar year.
IAU’s sponsor fee is 0.25%.
SGOL shares are issued by the abrdn Gold ETF Trust (“the Trust”), whose investment objective is to ensure the shares replicate the performance of the gold bullion price less the expenses of the Trust’s operations. The underlying benchmark is the London PM fix for Gold.
As the name suggests, the trust holds allocated physical gold bullions, which are securely stored in special vaults in Zurich. Switzerland and London, UK. The allocated bars in which the gold bars are held are posted daily on the arbdn ETF website for easy access for investors.
The fund was launched in September 2009 and has since amassed 1,430,482,654 ounces of gold in its vaults. Its net assets are worth over $2.5 billion. Moving on to performance, SGOL has returned 4.43% since its inception and 8.63% in the last three years.
SGOL’s expense ratio is 0.17%.
The GraniteShares Gold Trust is another gold ETF designed to reflect the general performance of the price of gold, less the trust expenses. It was launched in August 2017 as a physically backed ETF, meaning the Trust holds only physical gold bars stored in a vault in London, UK. The Trust publishes the list of gold bars in its holdings daily.
The total value of BAR’s holdings is $836 million, translating to over 450,000 Troy ounces. It has returned 6.5% since inception and 8.4% in the previous three years. The fund attracts a sponsor fee of 0.18% per annum.
UGL is issued and managed by ProShares. This gold ETF is designed to achieve daily investment returns that correspond to two times the daily performance of the Bloomberg Gold Subindex (the benchmark) before expenses and fees. According to ProShares, the Bloomberg Gold Subindex is a subindex of the Bloomberg Commodity Index. It is intended to reflect the performance of gold as measured by the price of COMEX gold futures contracts. The index is a rolling index; that is, it does not take physical possession of any commodities.
UGL has returned 5.21% since its inception in January 2008 and 3.26% in the last five years. It currently has over $240 million worth of assets in its portfolio, with an expense ratio of 0.95%.
7. Sprott Gold Miners ETF (SGDM)
The Sprott Gold Miners ETF (SGDM) seeks investment returns corresponding to the performance of the Solactive Gold Miners Custom Factors Index, which doubles as its underlying index before expenses and fees. The index monitors the returns of large-sized gold companies with stocks trading on the Canadian and top U.S. exchanges.
There are 32 companies in SGDM’s portfolio, domiciled across the United States, the United Kingdom, Australia, South Africa, and Canada. The portfolio construction of the fund has 97.42% gold-related companies and 2.58% for other precious metals.
SGDM was launched in July 2014 and currently has over $185 million in total net assets in its coffers. The quarter-end average annual total return for this fund in the previous three and five years is 4.09% and 5.22%, respectively.
Its expense ratio is 0.50%.
8. WisdomTree Efficient Gold Plus Equity Strategy Fund (GDE)
This fund is for you if you are looking for a gold ETF that invests in gold futures contracts. The Wisdom Tree Efficient Gold Plus Equity Strategy Fund (GDE) is designed to seek total return by investing in a portfolio that comprises gold futures contracts listed in the United States and large-cap equity securities of the United States. This investment is either directly or through a wholly-owned subsidiary.
GDE adopts a capital-efficient investment strategy that exposes investors’ portfolios to a market capitalization-weighted basket of the largest 500 U.S. equities with gold futures exposure layered on top. In terms of construction, the fund invests every $100 of investor’s money by putting $10 into short-term collaterals and $90 into large-cap U.S. equities. The $90 in gold futures are layered on top, translating to $180 total exposure to gold and equities.
This actively managed, open-end ETF was launched in March 2022 and has an expense ratio of 0.20%.
Who Should Invest in Gold ETFs?
You should consider investing in Gold ETFs if you want to track and replicate the price of gold in real-time and ultimately boost your income by trading this precious metal. With these funds, you are gaining rich market exposure on the price alongside the performance of actual gold.
Investors who are particular about performance will not be disappointed in most gold exchange-traded funds. Most of these funds have outperformed benchmark stock indices in the previous years and are cheaper because they attract lesser commission charges.
Final Words
Investing in gold ETFs is considered a more convenient, cheaper, and effective means of exposing your portfolio to this precious metal. While there is no perfect investment vehicle, past and present information about gold and gold ETFs have shown them to be relatively reliable options for investors. With the flexibility of gold and gold ETFs, you can preserve wealth, hedge against the dollar, diversify investments, or earn dividends.
How do you invest in Gold ETFs?
The first step is to look out for the best gold ETF. Fortunately, this article provides you with top options to pick from. Next, analyze the chosen ETFs by assessing their historical performance and expense ratio. You want to be sure the fund has performed in the past and will not cost you an outrageous annual management fee. Finally, proceed to buy the ETF from your preferred source.
If you enjoy this article, our website has other valuable ETF reviews and comparisons. Feel free to check them out.