An ETF on gold is an investment fund that trades on stock exchanges and provides private investors with a convenient way to invest in gold. These ETFs have two main types: some hold physical gold in secure storage, while others invest in gold futures contracts.
By investing in an ETF, an investor essentially buys a share of a larger investment pool. Depending on the type of ETF, this pool either owns physical gold or gold futures contracts. This scheme allows investors to benefit from the rises and falls in gold prices without the need to physically purchase, store, and insure gold bars or coins. Investors also avoid the complexities associated with the futures market by choosing ETFs that hold physical gold.
ETFs that invest in gold futures may have higher liquidity due to the trading volumes in the futures market, while ETFs containing physical gold may be considered safer but potentially less liquid.
Let’s take a look at some of the main physical gold ETFs:
- SPDR Gold Shares (#GLD) – one of the largest and most popular gold ETFs. When investing in GLD, the investor essentially buys a share of a vast collection of gold bars stored in secure vaults. This is a straightforward way to invest in gold without worrying about its storage and insurance. The gold held by GLD is stored in vaults in London, and the ETF has earned a reputation as a reliable and transparent fund.
- Annual Fee: 0.40%
- Market Capitalization: $52 billion
- iShares Gold Trust (#IAU) – another large exchange-traded fund with a slightly lower annual fee compared to GLD. Like GLD, IAU also stores physical gold in vaults. It is an economically attractive option for investors seeking a simple way to invest in gold. The gold held by the IAU ETF is stored in vaults in New York, Toronto, London, and other cities worldwide, providing geographic diversification of storage.
- Annual Fee: 0.20%
- Market Capitalization: $25 billion
- iShares Gold Trust Micro (IAUM) – an exchange-traded fund designed for investors concerned about costs and looking for an efficient way to invest in gold. Unlike IAU (its larger counterpart), IAUM’s main distinguishing feature is an exceptionally low annual fee and lower fund share prices, allowing for smaller investments. The ETF is designed as a more affordable option for individual investors. However, the ETF has a much smaller capitalization, which can sometimes lead to wider bid-ask spreads and potentially less favorable purchase or sale prices for the fund.
- Annual Fee: 0.00%
- Market Capitalization: $875 million
- Aberdeen Standard Physical Swiss Gold Shares (#SGOL) – This ETF not only holds physical gold but does so in vaults located in Switzerland, providing an additional level of security and geopolitical stability.
- Annual Fee: 0.17%
- Market Capitalization: $2.6 billion
Now, let’s consider ETFs that hold gold futures and more:
- Invesco DB Precious Metals Fund (DBP) – This ETF differs from those strictly focused on gold, such as GLD and IAU. One of the unique features of DBP is its investment in silver, which can be attractive to investors looking for a more diversified portfolio of precious metals. Therefore, the fund offers investments in gold and silver through futures contracts.
- Annual Fee: 0.75%
- Market Capitalization: $133 million
