Top 5 Gold ETFs
Investing in a gold ETF is one of the easiest ways to add exposure to gold within your portfolio. We’ve reviewed the best gold ETFs and explain how you can get started.
First, we'll touch on physically-backed gold ETFs, which own physical gold and hold it in safe storage. Then, we'll discuss ETFs that own stocks in gold mining companies.
In this article:
Physically-backed gold ETFs
A physically-backed gold ETF will give you direct exposure to the price of bullion, less any of the fund's management fees.
The SPDR Gold Shares ETF (GLD) is the largest physically-backed gold exchange-traded fund in the world. The Trust owns gold bullion stored in secure vaults, and each share represents a unit of beneficial interest in, and ownership of the Trust. Shares are listed and traded on the NYSE Arca, a subsidiary of the New York Stock Exchange. Each share represents one-tenth of an ounce of gold and aims to reflect the performance of the price of a gold bullion, less the Trust’s expenses, currently 0.40% of the Trust’s net asset value. At the time of writing, GLD has $67 billion of assets under management.
The iShares® Gold Trust ETF (IAU) is the second largest physically-backed gold exchange-traded fund, with $32 billion in assets under management. Its shares, listed on the NYSE Arca, equal one-hundredth of an ounce of gold. IAU has a 0.25% management expense ratio.
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Gold miners ETFs
Gold miners are also an attractive investment proposition because they usually see their profits change more than the price of gold. For example, a 1% increase in the price of gold should lead to an even larger increase in their profits because miners have high fixed costs. For example, the GDX gold mining ETF rose by 35% between its January low and March 2022, versus following an 11% rise in the price of gold. This is known as operating leverage.
However, you should also be aware that a miner’s performance will also be affected by their sales volumes, operational issues (such as strikes or natural disasters), their financial standing and liquidity, as well as political risks in the countries in which they operate.
The VanEck Vectors Gold Miners ETF (GDX) invests in the largest gold mining companies in the world. Its 10 largest holdings, which include stakes in Newmont Corporation and Barrick Gold Corporation, account for 64% of assets under management. GDX has $17.4 billion of assets under management and a 0.53% expense ratio.
Alternatively, the VanEck Junior Gold Miners ETF (GDXJ) tracks the performance of the most liquid junior companies in the global gold and silver mining industries. It invests in 100 such companies and its 10 largest holdings account for 37% of assets under management. Junior mining companies are typically early-stage miners still in the exploration and development phase, and may have yet to mine any resources.
Leveraged gold mining ETFs
Last but not least, you could also turn to a leveraged ETF if you're a gambler at heart. A leveraged ETF will seek to replicate two or even three times the daily change in a reference index. For example, the NUGT ETF seeks daily investment results (before fees and expenses) of 200% of the performance of the NYSE Arca Gold Miners Index. Likewise, the JNUG ETF seeks to replicate twice that of the MVIS Global Junior Gold Miners Index. Importantly, leveraged ETFs aren't designed for long term investors, as they tend to experience big moves up or down that will materially affect your return over time.
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Which gold ETF is best for you
When choosing between ETFs, you should consider each ETF’s liquidity, costs and tax treatment.
- Liquidity: size really does matter when it comes to ETFs. The larger the gold ETF, the closer it will track the price of gold bullion, and the less its price will depart from the fund’s net asset value.
- Expenses: gold ETFs regularly sell gold to cover their everyday expenses. Accordingly, the amount of gold represented by each share will decline by that amount, over time. The lower an ETF’s expenses, the higher your potential return.
- Tax treatment: you should also consider how any gains will be taxed. If you are a non-corporate investor in the US, it may be beneficial to invest in PHYS, a Canadian ETF, over most other precious metal ETFs, coins and bars. If in doubt, always speak to a tax advisor.
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