Investing in the best gold ETFs has never been more accessible or affordable.
While gold prices may ebb and flow, these investment vehicles offer you an array of ways to access the enduring appeal of the precious metal without breaking the bank.
Sure, gold prices might face some headwinds due to factors like potential interest rate hikes and the strong U.S. dollar.
But don’t be discouraged, as the long-term prospects for gold appear promising.
What you'll learn:
➤ Why Invest in Gold?
Gold enthusiasts extol the virtues of this shiny asset. They say it’s a hedge against inflation, a non-correlated asset that dances to its rhythm, and a potential haven during times of global uncertainty.
These compelling qualities make a strong case for gold, and the best gold ETFs are a convenient way to capitalize on them.
Furthermore, a recent survey by State Street Global Advisors revealed that 65% of respondents view gold as a long-term strategic investment.
What’s more, 73% of those surveyed believe that owning some of the best gold ETFs has enhanced the overall performance of their investment portfolios.
➤ How to Choose the Best Gold ETFs
If you’re considering these commodity ETFs as part of your investment strategy, it’s wise to familiarize yourself with the intricacies of gold investing.
It’s worth noting that gold has historically delivered modest returns compared to stocks. Therefore, it’s advisable to allocate a small portion, typically around 5%, to gold in your portfolio.
ETFs make an excellent choice for gold investment due to their liquidity, cost-effectiveness, and ease of use.
Here’s your introduction to the 7 best gold ETFs. This lineup includes the most prevalent gold ETFs, which frequently grace the pages of financial reports.
Additionally, we’ve included a few hidden gems that may offer a more attractive investment proposition than their higher-profile counterparts.
➤ 7 Best Gold ETFs
1️⃣ iShares Gold Trust (IAU)
- AUM: $24.2 billion
- Expense Ratio: 0.25%, which equals $25 annually for every $10,000 invested.
The iShares Gold Trust (IAU) stands as one of the leading gold exchange-traded funds (ETFs) in terms of assets under management.
Known for its cost-effectiveness and historical track record since its inception in early 2005, IAU has successfully accumulated over $24 billion in assets.
IAU offers shares designed to represent fractional ownership of an ounce of gold.
According to Gargi Chaudhuri, head of iShares Investment Strategy Americas at BlackRock, IAU provides a cost-effective alternative for investors seeking exposure to the gold market without the need to hold physical gold bullion.
While it remains a top choice for gold investors, IAU may not be as liquid as the SPDR Gold Shares (GLD), to be discussed shortly, and it has slightly wider bid-ask spreads, which may not make it ideal for short-term traders.
Nonetheless, its substantially lower expenses in comparison to GLD make it a more attractive choice for long-term investors.
To illustrate the cost savings, let’s consider a hypothetical scenario: investing $10,000 over a span of 30 years with an assumed 5% annual growth.
Opting for IAU over GLD in this case would result in approximately $1,770 in fee savings and reduced opportunity costs throughout the investment’s lifetime – an appealing prospect.
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2️⃣ SPDR Gold Shares (GLD)
- AUM: $51.6 billion
- Expense Ratio: 0.40%
The SPDR Gold Shares (GLD) epitomizes the archetype of gold ETFs by representing fractional ownership of physical gold bullion stored in secure vaults.
This structure allows investors to participate in potential gains from gold price increases without the hassles and costs associated with storing, safeguarding, and insuring physical gold bullion or coins.
GLD first entered the market in November 2004, making it the oldest U.S.-traded gold ETF, albeit by a mere two months. Its early entry into the market, particularly in the significant category of physical gold, has historically given it a substantial advantage over other fund providers.
Moreover, GLD holds the title of being the largest U.S.-traded gold ETF by a considerable margin. The assets under its management, nearly $52 billion, dwarf those of the second-largest gold ETF, IAU.
Interestingly, GLD and IAU share a unique history, with GLD debuting only two months before IAU in 2005.
However, GLD’s drawback is its relatively higher expense ratio. For some time, competitors effectively capitalized on this expense differential, but SPDR eventually took steps to address it.
Nonetheless, the sheer size and popularity of GLD offer numerous benefits to traders. The fund’s exceptional liquidity, narrow bid-ask spreads, and robust options market set it apart from traditional gold funds.
3️⃣ iShares Gold Trust Micro (IAUM)
- AUM: $847.3 million
- Expense Ratio: 0.09%
Over the past few years, gold ETFs have experienced a fierce fee competition. Initially, smaller players, including the GraniteShares Gold Trust (BAR) and abrdn Physical Gold Shares ETF (SGOL), undercut both GLD and IAU with expense ratios below 0.20%.
Fast-forward to 2018, when SPDR introduced the SPDR Gold MiniShares Trust (GLDM).
Similar to IAU in that each share represents 1/100th of an ounce of gold instead of 1/10th, GLDM offered a competitive 0.18% annual fee, providing SPDR with a more price-competitive fund compared to BAR and SGOL.
This move positioned SPDR as a major contender in the gold market, offering both a cost-effective product (GLDM) for retail investors focused on long-term holdings and a high-volume trading product (GLD) for institutional and other accounts.
In response, iShares launched the iShares Gold Trust Micro (IAUM) in the summer of 2021, sporting a 0.15% expense ratio. This made it the cost leader among the best gold ETFs.
However, in the spring of 2022, SPDR counterpunched by reducing GLDM’s expense ratio to just 0.10%. As of now, iShares has an edge again, as IAUM boasts a mere 9-basis-point fee.
Another distinguishing feature of IAUM is the affordability of its shares. This cost-effective entry point makes it an excellent choice for novice investors with smaller amounts to invest.
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4️⃣ Franklin Responsibly Sourced Gold ETF (FGDL)
- AUM: $63.7 million
- Expense Ratio: 0.15%
Even among the finest gold ETFs, Environmental, Social, and Governance (ESG) investing principles have made their mark. The Franklin Responsibly Sourced Gold ETF (FGDL) represents physical gold. Its unique selling point is the source of its gold.
According to Franklin Templeton, it acquires gold from LBMA accredited refiners obligated to demonstrate their commitment to environmental preservation and combatting issues.
Such as money laundering, terrorist financing, and human rights abuses in alignment with the LBMA’s Responsible Gold Guidance.
This eco- and human-friendly approach doesn’t appear to hinder its performance. Although FGDL has limited trading history, having launched in June 2022, it has displayed performance on par with its peers.
Moreover, FGDL offers cost-effectiveness with an extremely competitive 0.15% annual expense ratio.
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5️⃣ VanEck Gold Miners ETF (GDX)
- AUM: $10.3 billion
- Expense Ratio: 0.51%
Gold ETFs that represent physical holdings offer the most direct route to invest in gold within the stock market. However, an alternative approach is investing in gold through mining stocks.
In essence, gold miners extract gold ore from mines and process it into gold, with the aim of generating a profit by selling the gold for a price higher than their production costs.
The ideal situation is to hold gold miners with low production costs while gold prices are on the rise and surpassing these costs.
One popular way to access this industry is through the VanEck Gold Miners ETF (GDX). This ETF comprises around 50 companies operating in the gold mining sector.
GDX follows a market-cap-weighted structure, meaning that stocks with higher market capitalization receive a greater allocation of assets.
As a result, it has substantial exposure to larger mining companies, such as Newmont, Barrick Gold, and Franco-Nevada, which collectively account for approximately two-thirds of the fund’s assets.
This concentration of assets may raise concerns in a broad-market ETF that aims for sector or industry diversification. However, in the case of GDX, which indirectly tracks gold prices, the focus on the underlying commodity reduces the impact of this lopsided exposure.
It’s essential to note that gold stocks tend to be more responsive to changes in gold prices than gold ETFs that directly hold the metal. In other words, when the SPDR Gold Shares (GLD) performs well, GDX often outperforms, and vice versa.
This dynamic is advantageous during bull markets and for short-term trading but can result in more significant losses during bear markets and greater long-term instability.
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6️⃣ VanEck Vectors Junior Gold Miners ETF (GDXJ)
- AUM: $3.4 billion
- Expense Ratio: 0.52% (0.50% in management fees and 0.02% in other expenses)
For those seeking a more high-risk, high-reward approach to gold investment, junior gold miners offer potential for substantial gains.
These companies play a critical role in the early stages of gold production, from discovering new gold deposits to estimating their resource size and even initiating mining operations.
Junior gold miners carry significant risks due to the volatile nature of their work. A project that appears promising one day may take a downturn, leading to a sharp decline in stock value.
Moreover, these smaller firms typically have limited financial reserves, providing little safety net in case of adversity. On the flip side, successful projects can propel stock prices to remarkable heights rapidly.
Investing in one or two junior mining stocks can be exceedingly risky. For those interested in this type of gold investment, the VanEck Vectors Junior Gold Miners ETF (GDXJ) offers diversification by spreading the risk across nearly 100 such companies.
Some of the notable names within its portfolio include Pan American Silver, Kinross Gold, and Alamos Gold.
Despite having more holdings and a more balanced top-10 holdings concentration, GDXJ experiences slightly greater volatility due to the inherent risks associated with junior miners.
This characteristic can be advantageous in favorable market conditions but may lead to more significant losses or instability in the long run.
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7️⃣ U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU)
- AUM: $80.3 million
- Expense Ratio: 0.60%
Lastly, an option exists for those interested in investing in not just gold but other precious metals. The U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU) offers a compact portfolio comprising fewer than 30 companies engaged in the production of gold and other precious metals.
These companies are involved in both active roles, such as mining, and passive roles, including owning royalties or production streams.
This ETF provides access to a variety of precious metals, and its performance can benefit from factors that drive gold prices higher, such as a weakening U.S. dollar, which can also elevate other precious metals and the companies engaged in their extraction.
Notable holdings within the portfolio include companies like Royal Gold, Wheaton Precious Metals, and Franco-Nevada, which deal with streaming agreements connected to various precious metals. The ETF offers a diversified approach to investing in the broader precious metals sector.
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➤ Final Thoughts
In the dynamic landscape of gold ETFs, investors have a multitude of choices to align with their unique objectives. The appeal of gold as a store of value remains steadfast, and the convenience of ETFs makes accessing this precious metal more straightforward than ever.
The iShares Gold Trust (IAU) and SPDR Gold Shares (GLD) stand as stalwarts in the field, offering distinct benefits – cost-effectiveness versus liquidity and tight spreads.
For the cost-conscious, iShares Gold Trust Micro (IAUM) and Franklin Responsibly Sourced Gold ETF (FGDL) introduce attractive alternatives with a focus on lower expense ratios and responsible sourcing.
Venturing into gold miners, VanEck Gold Miners ETF (GDX) and VanEck Vectors Junior Gold Miners ETF (GDXJ) offer investors exposure to companies operating within the gold mining sector.
The balance between risk and reward plays a pivotal role here, and the choice between them is akin to deciding between traditional gold ETFs and mining stocks.
For those seeking diversification into multiple precious metals, the U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU) broadens the scope. The allure of precious metals beyond gold is undeniable, and this ETF provides an entry point to the world of various commodities.
In the end, the choice of the best gold ETF depends on your individual investment strategy, risk tolerance, and time horizon. By considering the factors that matter most to you, you can harness the enduring power and potential of gold within the framework of an ETF portfolio.
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