It's a good time to be a proponent of gold and gold ETFs (exchange-traded funds). The cost of investing in gold through funds continues to trickle lower, and the variety of ways to get exposure to gold continues to grow.
And the price of gold continues to trend higher amid monetary and fiscal policy uncertainty in the U.S. and increased buying from central banks in Asia diversifying their foreign reserves.
At the same time, a recent study conducted by State Street Global Advisors and the World Gold Council found that many financial advisers view gold as a "global asset with a multitude of both strategic and tactical drivers."
The survey found that 35% of the advisers surveyed said their clients have expressed a desire to invest in gold. These demand drivers make "a strong case" for gold in the year ahead, State Street says.
Why should I invest in gold?
Gold investors typically tout several virtues of the yellow metal.
It provides a hedge against inflation. It's an uncorrelated asset that doesn't move with the stock market. And it can grow in value amid high and rising domestic and/or geopolitical uncertainty.
These are features of the macro bull case for this precious metal. And you can leverage it via gold ETFs.
What are the best gold ETFs?
Before you use these commodity ETFs to diversify your portfolio, it's a good idea to learn the ins and outs of gold investing.
The first thing you need to know about gold is that it has "has generated disappointing long-term returns compared to stocks," says Dan Burrows, senior investing writer at Kiplinger.com. That's one of 10 facts Dan enumerates in his article on what you need to know about investing in gold.
Another point Dan makes is that if you invest in gold, make it a small portion (5%) of your portfolio. We recommend investing in gold ETFs for that allocation for several reasons, including liquidity, low expenses and ease of use.
So let's talk about seven low-cost ETFs that provide efficient exposure to gold.
Our list includes the most ubiquitous gold ETFs on the market – funds you'll read about in daily commodity wrap-ups – as well as a few that aren't as well-covered but might make more sense for you than their better-known brethren.
Data is as of December 19.
- Assets under management: $32.7 billion
- Expenses: 0.25%, or $25 annually for every $10,000 invested
The iShares Gold Trust (IAU, $49.00), one of the biggest gold ETFs by assets, has long been a premier low-cost option for investors. IAU's cheap fees as well as its relative longevity (inception was in early 2005) have helped it amass about $33 billion in assets under management.
The ETF's shares are meant to represent a fraction of an ounce of gold. Gargi Chaudhuri, head of iShares Investment Strategy Americas at BlackRock, says that IAU "allows for a cost-effective way of accessing the gold market instead of owning the physical gold bullion."
This is still one of the best gold ETFs out there, but it isn't as liquid as the SPDR Gold Shares (GLD), which we'll get to momentarily. And its bid-ask spreads aren't as tight, so it's not ideal for short-term traders. However, its significantly lower cost than GLD makes it a better buy for long-term buy-and-holders.
Let's say you wanted to invest $10,000 for 30 years. And let's assume about 5% annual growth. IAU would end up saving you $1,770 in fees and opportunity cost vs GLD over the life of the investment. Not bad.
Learn more about IAU at the iShares provider site.
- Assets under management: $71.7 billion
- Expenses: 0.40%
The SPDR Gold Shares (GLD, $239.60) is the prototypical gold fund: It represents fractional interest in physical gold bullion stored in vaults. That allows investors to participate in the upside of gold prices without having to deal with the hassles of physically storing, protecting and insuring bullion or coins.
The SPDR Gold Shares debuted in November 2004, making it the oldest U.S.-traded gold ETF, albeit by just two months. But being first to market – especially in a major category like physical gold – has, historically speaking, been a massive advantage for fund providers.
To wit, GLD is also the largest U.S.-traded gold ETF by a country mile. IAU, the second-largest gold ETF, doesn't even boast half of GLD's $72 billion in assets – and yes, it's the very same fund that debuted two months after SPDR's gold ETF.
GLD has one glaring downside: a relatively high expense ratio. Several competitors successfully exploited that for some time, though SPDR finally addressed it. (More on that in a minute.)
However, the sheer size and popularity of one of Wall Street's best gold ETFs has several benefits for traders: The fund is extremely liquid and has tight bid-ask spreads, and its options market is more robust than any other traditional gold fund.
Learn more about GLD at the SPDR provider site.
- Assets under management: $87.5 million
- Expenses: 0.15%
ESG investing is found even among the best gold ETFs. The Franklin Responsibly Sourced Gold ETF (FGDL, $34.67), like the aforementioned gold funds, represents the physical metal.
How the Franklin Responsibly Sourced Gold ETF tries to differentiate itself is where its gold comes from. Per Franklin Templeton:
"Gold sourced from LBMA accredited refiners that are required to demonstrate their efforts to respect the environment and combat money laundering, terrorist financing and human rights abuses in accordance with the LBMA's Responsible Gold Guidance."
This potentially more eco- and human-friendly approach doesn't appear to weigh on performance, either. FGDL doesn't have much of a trading history – it launched in June 2022 – but so far, it's behaving just like its rivals.
This gold ETF isn't hard on the wallet, either, charging an extremely competitive 0.15% in annual fees.
Learn more about FGDL at the Franklin Templeton provider site.
- Assets under management: $1.4 billion
- Expenses: 0.09%
Gold ETFs have fought a massive fee war over the past few years.
For a while, a couple of smaller players – including the GraniteShares Gold Trust (BAR) and abrdn Physical Gold Shares ETF (SGOL) – undercut both GLD and IAU with sub-0.20% annual expenses.
Fast-forward to 2018, and SPDR launched the SPDR Gold MiniShares Trust (GLDM) – similar to IAU in that each share represents 1/100th of an ounce of gold rather than 1/10th – at a 0.18% annual fee, giving SPDR a much more price-competitive fund to pit against BAR and SGOL.
That gave SPDR a total threat in the gold space, offering both a dirt-cheap product (GLDM) for buy-and-hold retail investors, as well as a high-volume trading product (GLD) for institutional and other accounts.
However, iShares fired back in summer 2021 with the iShares Gold Trust Micro (IAUM, $25.90) at 0.15%, making it the low-cost leader among gold ETFs. Then in spring 2022, SPDR punched back by lowering GLDM to just 0.10 %.
But – as of now – iShares is enjoying the last laugh, having dipped just underneath GLDM again with a mere nine-basis-point fee.
IAUM has one other noteworthy trait: Shares cost around $26 at present. That's an even more digestible number than the more than $50 per-share cost of both sister fund IAU and rival GLDM, making it one of the best ETFs for beginners working with smaller dollar amounts.
Learn more about IAUM at the iShares provider site.
- Assets under management: $12.9 billion
- Expenses: 0.51%
Gold ETFs that represent physical holdings are the most direct way to invest in gold via the stock market. But you can also play gold via mining stocks.
Here's a very short explanation of the fundamentals: Gold miners extract gold ore from a mine and then process it into gold. They try to do that at a cost that's less than the price they sell the gold for, generating a profit.
The ideal situation is to hold gold miners that have low costs of production while gold prices are both increasing and higher than those companies' costs to produce the gold.
One popular way to play this industry is the VanEck Gold Miners ETF (GDX, $34.39) – a collection of roughly 60 companies in the gold mining industry.
The fund is weighted by market cap, which means the bigger the stock, the greater the percentage of assets GDX invests in it. The ETF is heavily weighted, then, in bigger miners such as Newmont (NEM, 12% of assets), Agnico Eagle Mines (AEM, 10.5%) and Barrick Gold (GOLD, 7.6%). In fact, 62% of the fund's assets are concentrated in just the top 10 holdings.
That'd be more of a concern in a broad-market ETF where the supposed goal is wide sector/industry diversification. But, like how some energy ETFs are effectively an indirect play on oil prices, GDX is an indirect play on gold prices. All of its holdings will move somewhat similarly based on the underlying commodity, so the lopsided exposure isn't as worrisome.
But you should note that gold stocks tend to be more reactive to the price of gold than gold ETFs that actually hold the metal. In other words, when GLD improves, GDX tends to improve more (and vice versa). That's great in boom times and good for shorter-term trades. But it can also mean more pain in bust times and less stability over the long term.
Learn more about GDX at the VanEck provider site.
- Assets under management: $4.6 billion
- Expenses: 0.52%*
Another way to leverage gold that's even riskier than traditional miners but also has more "pop" potential: junior miners.
When you think of mining companies, you tend to think of the companies in GDX – they operate mines, process the ore and sell the gold. But there's a lot that goes on first, and that's where junior gold miners come in.
Junior miners employ engineers and geologists to help discover new gold deposits, determine how big their resources are and even help start mines up. They are high-risk companies given the nature of their work. A seemingly promising project could turn south overnight, decimating the value of the stock.
These small companies typically aren't flush with cash, either, so there's not much of a backstop should disaster strike. The flip side? Success can send these stocks flying quickly. Holding one or two of these stocks can be extremely risky.
If you want exposure to this type of gold play, the VanEck Vectors Junior Gold Miners ETF (GDXJ, $44.03) spreads the risk across 89 such companies – names such as Pan American Silver (PAAS, 7%), Alamos Gold (AGI, 6.8%) and Harmony Gold Mining (HMY, 5.8%).
Although this index fund has more holdings and is less top-heavy than GDX – top-10 holdings account for just 42% of the fund's assets – the riskier nature of junior miners results in slightly more volatile performance, for better or worse.
* 0.50% in management fees and 0.02% in other expenses
Learn more about GDXJ at the VanEck provider site.
- Assets under management: $87.7 million
- Expenses: 0.60%
One last option puts you in touch with miners of not just gold but other precious metals.
The U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU, $19.40) is another tight portfolio, holding fewer than 30 companies engaged in the production of gold or other precious metals, whether actively (say, mining) or passively (owning royalties or production streams).
That's not a bad deal considering that many of the same factors that can drive gold higher, such as a sliding U.S. dollar, can also lift other precious metals and the companies that dig for them.
Top holdings at present include the likes of Franco-Nevada (FNV, 10.3%) and Wheaton Precious Metals (WPM, 9.9%), royalty-and-streaming companies, and Royal Gold (RGLD, 9.8%), which deals in streaming agreements tethered to gold, silver and other precious metals.
Learn more about GOAU at the U.S. Global Investors provider site.
