Gold is a popular asset among investors wishing to hedge against risks such as inflation, market turbulence, and political unrest. Aside from buying gold bullion directly, another way to gain exposure to gold is by investing in exchange-traded funds (ETFs) that hold gold as their underlying asset or invest in gold futures contracts.
Some investors view ETFs as a relatively liquid and low-cost option for investing in gold compared to alternatives such as gold futures or shares of gold-mining companies. Still, the price of gold can see big swings, meaning the ETFs that track it can also be volatile.
There are now more than 10 gold-focused ETFs that trade in the U.S., excluding leveraged and inverse funds as well as those with less than $50 million in assets under management (AUM). These funds invest directly in either gold bullion or gold futures contracts as opposed to companies that mine for the metal.
The price of gold, as measured by the benchmark S&P GSCI Gold Index, has a total year-to-date return of -8% over the past year, down but better than the S&P 500’s YTD return of -25.0%, through mid-October 2022.
There is a three-way tie for best-performing gold ETF based on performance over the past year: the SPDR Gold MiniShares Trust (GLDM) fund, the abrdn Physical Gold Shares ETF (SGOL), and the iShares Gold Trust Micro (IAUM) fund. We take a closer look at these three gold ETFs below (all numbers are as of Q4 2022). In order to focus on the funds’ investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.
Key Takeaways
- Gold ETFs let ordinary investors gain exposure to this precious metal in their portfolios.
- The price of gold has performed slightly better than the broader U.S. equity market over the past year.
- The exchange-traded funds (ETFs) with the best one-year trailing total returns are GLDM, SGOL, and IAUM.
- The sole holding of each of these ETFs is gold bullion.
- Performance Over One Year: -7.6%
- Expense Ratio: 0.10%
- Annual Dividend Yield: N/A
- Three-Month Average Daily Volume: 1,701,814
- Assets Under Management: $4.7 billion
- Inception Date: June 25, 2018
- Issuer: World Gold Council
GLDM is a gold ETF that aims to reflect the performance of the price of gold minus fund expenses. The ETF is structured as a grantor trust, which may provide investors with a certain degree of tax protection. Like SGOL and IAUM on our list (see more below), GLDM also has a lower expense ratio than many other alternative gold commodity ETFs.
GLDM tracks the London Bullion Market Association (LBMA) Gold Price as a benchmark. It provides a cost-effective and convenient way for investors to invest in gold. The sole holding of the fund is gold bullion.
- Performance Over One Year: -7.7%
- Expense Ratio: 0.17%
- Annual Dividend Yield: N/A
- Three-Month Average Daily Volume: 1,112,938
- Assets Under Management: $2.3 billion
- Inception Date: Sept. 9, 2009
- Issuer: Abrdn Plc
Like GLDM above, SGOL is a gold ETF that is structured as a grantor trust that seeks to track the performance of the price of gold bullion minus fund expenses. As mentioned, it also has lower expenses than many other gold ETFs, although it is not quite as inexpensive as SGOL.
The sole holding of the fund is gold bullion, which is stored in vaults in London and Zurich.
- Performance Over One Year: -7.6%
- Expense Ratio: 0.15%
- Annual Dividend Yield: N/A
- Three-Month Average Daily Volume: 88,170
- Assets Under Management: $1.0 billion
- Inception Date: June 15, 2021
- Issuer: BlackRock Financial Management
Unlike the gold exchange-traded products listed above, IAUM is structured as a true ETF. It trades on the NYSE Arca and also utilizes the LBMA Gold Price as a benchmark. Like the other gold funds on our list, IAUM can be utilized as a way to diversify a portfolio of securities and to protect against inflation.
The sole holding of IAUM is gold bullion.
What Is the Difference Between Gold ETFs and Gold Futures?
A golf ETF is an exchange-traded product, which is a pooled investment fund that holds physical gold or gold derivatives in its portfolio. Investors can buy and sell shares of gold ETFs like ordinary shares of stock.
Gold futures are derivatives contracts that specify the purchase or sale of a set amount of physical gold at some point in the future, for a price agreed upon today. Gold futures are not accessible to all investors, and carry unique risks such as additional leverage and the possibility of physical delivery.
What Is a Short Gold ETF?
A short gold ETF allows ordinary investors to take a short position in gold, meaning that the ETF will rise in value as the market price of gold declines, and vice-versa.
What Is a Double Gold ETF?
A double gold ETF is a leveraged ETF that provides 2x the return of gold to investors. So if the market price of gold were to increase by 1%, a double gold ETF would rise by 2%, and vice-versa.
The Bottom Line
Investing in gold can diversify one’s portfolio, provide a store of value, and a hedge against unexpected inflation. Holding physical gold, however, can be cumbersome and costly and gold derivatives may be too complex and risky for ordinary investors. Fortunately, there are ways to own gold without keeping a physical stash of it or worrying about futures or options. Gold ETFs are exchange-traded products that allow ordinary investors to gain exposure to the physical gold market, but which trade like ordinary shares of stock. This means that investors can buy and sell gold ETFs throughout the day and add them to their portfolios at low cost.
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