Find the best gold ETFs
Savvy investors understand the importance of diversification. Despite this, stocks, bonds and real estate take up the lion's share of media mentions and investment portfolios alike. Commodity exchange-traded funds (ETFs) are an excellent way to diversify outside of those big three investment classes.
Of all commodities, gold is especially alluring to many people — the physical asset has a mystique about it. As an investment, gold has a history of doing well when other asset classes falter. Unlike stocks, it is a physical item. But unlike another physical asset, real estate, it doesn't require a massive buy-in to begin investing.
Gold stocks and gold futures are excellent choices if you're considering bringing a commodity ETF into your investment strategy.
You'll now be faced with the challenge of finding the best gold mutual fund for you. We're cutting through the confusion to help you diversify your portfolio with confidence.
What are gold ETFs?
Gold ETFs are exchange-traded funds that let you invest in gold without owning the metal itself. Instead, these funds trade like stocks and either track the spot price of gold itself or invest in entities involved in the gold industry, such as gold mining companies.
Gold ETFs are an excellent option for investors who want exposure to the gold market and gold futures without dealing with shipping, storage and insurance.
Compare popular gold ETF options
While you’re reviewing gold ETFs, there are several important factors to consider: performance, expense and stability. In our review of popular gold ETF options, we utilized ETF.com for market performance and the individual fund managers' websites for specific fund information.
The commodity ETFs on our list are almost all ones that trade in physical gold. However, you might also look to gold mutual funds that have a position in gold mining companies.
We'll be sure to point out each fund's expense ratio, but note that all of the ETFs we have selected have ratios below the average of 0.58%.
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Summary and performance overview accurate as of 11/17/2021.
GraniteShares Gold Trust manages a low-cost ETF that consists of 100% gold assets. The company is a fast-growing fund within the gold sector, and its flagship fund, BAR, was listed on the NYSE in 2017, allowing for easy trading within a standard brokerage account.
BAR tracks the gold spot price minus any trust expenses and liabilities. Gold bars are held at a secure facility in London, which is inspected twice annually. With a 0.17% expense ratio, BAR earned its title as a low-cost ETF.
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Summary and performance overview accurate as of 11/17/2021.
Goldman Sachs Physical Gold ETF consists entirely of physical gold assets. AAAU has an inception date of July 26th, 2018, and presently manages assets totaling more than $433 million.
AAAU tracks the gold spot price minus trust expenses. The fund's physical gold assets are held at a secure vault in London. With an expense ratio of 0.18%, AAAU ties with GLDM as the second lowest-cost fund on our list.
Investors who appreciate a fund manager with broad market experience will find value in the oversight of Goldman Sachs.
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Summary and performance overview accurate as of 11/17/2021.
Aberdeen Standard Physical Gold Shares ETF trends closely with several other gold ETFs we reviewed. The fund consists entirely of physical gold assets. SGOL was purchased from ETF Securities in 2017 by Aderdeen and presently has $2.47 billion in assets under management.
AAAU tracks the gold spot price minus trust expenses. The fund's physical gold assets are held at its secure vault in Zurich and London. AAAU ties with BAR as the lowest-cost gold ETF, with an expense ratio of 0.17%.
One thing that differentiates SGOL from other funds is its focus on investors seeking smaller positions: SGOL serves this market segment by trading at 1/100th the spot price of gold. This makes the fund a fan favorite of retail investors who want to diversify but don't intend to take a significant position in gold.
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Summary and performance overview accurate as of 11/17/2021.
One of the older funds on our list, iShares Gold Trust (IAU) is issued by BlackRock. Its $29.65 billion in assets under management is significantly more than other funds we reviewed.
IAU tracks the gold spot price minus trust expenses. Physical gold assets are held in secure vaults around the world. The expense ratio of 0.25% is slightly higher than others we reviewed, but it’s still below the 0.58% average.
IAU has operated since 2005, so it has been active longer than most other funds we've reviewed while still maintaining a below-average expense ratio.
If the stability of a fund is high on your list but you still want a low expense ratio, IAU may be your winner.
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Summary and performance overview accurate as of 11/17/2021.
SPDR Gold Shares (GLD) made its entry in 2004 and was the first fund investing specifically in gold. As a result, SPDR holds a significant share of the gold market with an impressive $57.33 billion in assets under management, nearly double the combined value of the other funds we reviewed.
GLD tracks the gold spot price less expenses and liabilities, with gold assets held in secure vaults in London. The expense ratio of 0.40% is the highest of those we've reviewed but is still below the average.
The issuer of GLD, State Street Global Advisors, also manages SPDR Gold MiniShares Trust (GLDM). GLDM consists of about 10% of the gold per share as GLD, allowing a much lower entry point for investors. In addition to the lower cost per share, it offers an expense ratio of 0.18%, which is nearly the lowest on our list.
GLDM has an average daily volume of $44.81 million and $4.4 billion of assets under management.
Whether you are looking for the go-to fund for the gold market or its smaller, more cost-efficient spinoff, you'll find GLD and GLDM are hard to beat.
How to invest in gold ETFs
If you're new to investing in gold ETFs, don't worry — it is very similar to investing in the stock market. There are no accreditation requirements, and many funds offer affordable entry points, so the barrier to enter into gold investments is low.
- Determine how much money you'd like to invest.
- Do your research. Gain a deeper understanding of the gold market as well as individual gold mutual funds you're considering. Take time to understand gold futures as well, as this is another investment strategy to consider.
- If you don't already have a brokerage account, you'll need to open one with a traditional brokerage or an online trading platform.
- Once you've opened your account and decided how much money you would like to invest in gold, you can buy shares of gold just as you would buy shares of stock.
- Prepare for the tax implications associated with gold investments. As with most other assets and investments, gold is taxable, so you'll want to plan accordingly.
Understanding gold ETF taxes
If you’re investing in a physically backed gold mutual fund, meaning your investment results in real gold with your name on it, the IRS views it as a collectible rather than a traditional investment.
You may not possess the gold, but you do own it. Tax rates on collectibles can be up to 28%, which is a bit more than the typical 20% capital gains rate of other investment classes.
To avoid the increased collectibles tax, you might consider investing in a gold mutual fund made up entirely of gold mining companies. You are exposed to the volatility of the companies within the fund and the gold market, but you won’t trigger the collectible tax by owning physical gold.
Gold ETFs vs. physical gold
There are two primary ways to invest in gold: physically holding it or owning it through a commodity ETF.
Gold ETFs do not require you to arrange shipment and delivery like physical gold does.
Both approaches give you diversification and exposure to the fluctuations of the gold market. Historically, gold does not follow the typical patterns you see with stocks, bonds and real estate.
The most significant differences come from the implications of owning the physical asset. For example, physical gold requires shipment and storage. It should also be insured.
ETFs trade on exchanges just like stocks, so you only need to connect with your brokerage account and purchase shares of the fund.
Convenience is perhaps the most significant advantage that ETFs offer investors. There is no need to arrange for shipment and delivery.
Bottom line
Gold ETFs are popular investment vehicles to get in the gold market, which sees increased interest (and usually value) during economic uncertainty. If you're interested in diversifying and adding a layer of protection against volatility, you'll find gold ETFs are one of the simplest, most efficient ways to do so.
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