What are the Best Gold ETFs?

Contrary to what Warren Buffett might have to say about gold, the precious metal remains as a much sought after safe haven investment for many and often gains prominence during times of uncertainty, be it financial or geo-political. While the U.S. dollar and Treasuries are also considered to be safe haven assets, gold enjoys the status of being a global safe haven asset, thus making it the go to commodity in times of uncertainty or crises.

Among the many different ways to trade or gain exposure to gold, Gold ETFs ranks on the top for investors and often comes into focus especially when gold prices surge. Such was the case in 2016 when gold posted impressive gains in the first half of the year, only to end up giving back half those gains by December 2016. Still, gold and Gold ETFs by extension haven't lost the glitter.

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Investing in gold is quite easy especially when utilizing gold exchange traded funds. These investment products track the price of the underlying asset, which is gold in this case and comes with some overheads such as management fees which also need to be accounted for. While these overheads might be a put off for some investors, it is compensated by the tight spreads (on popular ETFs) seen with gold ETF's in comparison to trading the spot gold prices directly.

The trends seen in 2016 was in stark contrast to how the precious metal was trading for the most part of the previous years as gold along with most other precious and base metals remained a serious bear market. However, with questions on President Trump's fiscal spending and already rising inflation and the subsequent interest rate hikes, gold will most likely remain in the spotlight for a considerable period of time. This will translate to increased interest in gold ETFs. Despite gold ETFs staying in the spotlight, there is a lot of misunderstanding by investors.

For example, when one talks about gold ETFs, the first product that comes to mind is GLD, the SPDR Gold Trust. While GLD is one of the largest gold ETFs having over $35 billion in assets and high trading volume on a daily basis, there are a lot more gold ETFs besides GLD and for the informed ETF trader of investor this can be a profitable way to trade gold via the ETFs while not being stuck to trading just the GLD.

In this article we take a look at the best gold ETFs that you can trade.


How to evaluate ETFs?

Picking ETFs is a slightly different ballgame than compared to picking stocks. At the basic level, an ETF merely tracks the underlying asset, which happens to be gold in the context of this article but can be anything, for example the S&P500. So for an exchange traded product that is tracking a market that we already know, how does picking an ETF differ?

Based on the efficiency picking the ETF can produce big rewards. When picking an ETF here are the key factors to bear in mind.

ETF Expenses: This is the starting point for picking an ETF and is also known as the expense ratio. It is nothing but the rate charged by the fund to track an asset. Expense ratio can be determined to be efficient depending on how well the ETF tracks the underlying asset or replicates its performance. As a general thumb rule, ETFs with low expense ratio while closely tracking the underlying asset is more efficient.

Tracking results: This is the second part of picking an ETF. It simply determines how well an ETF has been tracking the price of the underlying asset. Simple questions such as how closely the ETF increased when the price of underlying asset increase can help you figure out how closely the ETF has been tracking the underlying asset.

Capital gains: ETFs are generally tax efficient but that doesn't mean that all ETFs are the same. The rate of capital gains distribution can be measured by taking the average capital gains paid and dividing it by the NAV during the time. Lower the rate of capital gains distribution, the more efficient the ETF is in terms of taxes.

Besides the above factors, ETF investors should also look at various aspects of the ETF product itself. For example, in the context of gold, ETF investors can look at not just gold ETF’s but also inverse gold ETF’s and gold miner ETF’s to gain an all round exposure to the underlying asset.

The list below summarizes some of the best gold and its related ETFs to trade or invest in which also allows for diversification.

1.  GLD (SPDR Gold Trust)

GLD (SPDR Gold Trust)

GLD (SPDR Gold Trust)

GLD is renowned for being one of the largest gold ETFs. Known as the SPDR Gold Trust, the GLD ETF tracks the underlying gold prices quite closely and also boasts of less expensive expense ratio of 0.40%. GLD ETF has been around since 2004 and accounts for approximately $30.92 billion in Assets under management and boasts of a daily volume of $894.54 million. GLD, due to its high volume makes it one of the top Gold ETFs with a 0.01% average 60-day spread.

Name Ticker Inception year AUM Avg. Daily Vol. Spread Expense Ratio
SPDR Gold Trust GLD 2004 $30.92 billion $894.54 mill. 0.01% 0.40%

2.  IAU (iShares Gold Trust)

IAU (iShares Gold Trust)

IAU (iShares Gold Trust)


IAU is a fairly cheaper option compared to GLD and is the second most popular Gold ETF. Similar to GLD, IAU also tracks the spot gold prices quite closely and is considered to be a low cost option and a viable alternative to GLD ETF. The IAU is a stable fund and the gold bars are held in vaults across the world and the fund is issued by Blackrock. IAU was launched just a year after GLD. The expense ratio is cheaper, at 0.25% but the assets under management are lower at $7.59 billion including average daily volume of $102.72 million. Compensating for the lower expense ratio is the fairly higher average 60-day spread at 0.09%.

Name Ticker Inception year AUM Avg. Daily Vol. Spread Expense Ratio
iShares Gold Trust IAU 2005 $7.59 billion $102.72 mill. 0.09% 0.25%

3.  GDX (VanEck Vectors Gold Miners ETF)

GDX (VanEck Vectors Gold Miners ETF)

GDX (VanEck Vectors Gold Miners ETF)

The VanEck Vectors Gold miners ETF (GDX) is a bit unique compared to GLD or the IAU Gold ETFs. The GDX tracks a market capitalized weighted index of global gold and silver mining firms, also known as the NYSE ARCA Gold Miners Index. The gold miners index remains at the forefront of the companies mining for gold and the profits and losses are directly linked to the price of spot gold. Some of the more famous names that make up the GDX ETF include Barrick Gold Corp, Newmont Mining Corp and Goldcorp Inc.

GDX makes for a very popular ETF to own as it varies slightly different compare to GLD or IAU ETFs which directly track the spot gold prices. Up until 2013, GDX was limited to tracking U.S. listed firms only but that changed giving GDX a much broader exposure. The top countries in order of exposure include Canada, U.S., Australia, South Africa, UK, Peru, China and Turkey.

Name Ticker Inception year AUM Avg. Daily Vol. Spread Expense Ratio
VanEck Vectors Gold Miners GDX 2006 $10.06 billion $1.62 mill. 0.05% 0.52%

4.  DUST (Direxion Daily Gold Miners Bear 3x Shares)

DUST (Direxion Daily Gold Miners Bear 3x Shares)

DUST (Direxion Daily Gold Miners Bear 3x Shares)

The Direxion daily gold miners bear 3x shares falls in the category of leveraged ETF's. As the name suggests, DUST offers three times the inverse exposure to a market cap weighted index of global gold and silver mining firms. Think of DUST as having a three time exposure to trading GDX. The DUST leveraged ETF has a higher expense ratio of 0.97% and also has a higher spread of 0.15%, meaning that to get a three times leverage, investor will also need to pay higher costs.

DUST is said to be one of the aggressive inverse play on the NYSE ARCA Gold Miners Index and is usually traded as short term play for investors thus justifying the higher costs are not considered to be an issue unless the ETF is being held for a long period of time.

Name Ticker Inception year AUM Avg. Daily Vol. Spread Expense Ratio
Direxion daily gold miners bear 3x shares DUST 2010 $260.08 million $380.36 mill. 0.15% 0.97%

5.  VGPMX (Vanguard Precious Metals and Mining Fund)

The VGPMX is slightly different to the other gold ETFs, in that it is a mutual fund. The Vanguard Precious Metals and Mining Fund ("VGPMX") is not a pure precious metal play unlike other gold ETFs as it also comprises of some basic materials as well. The VGPMX fund seeks capital appreciation by investing in gold related companies that include exploration, mining and processing. VGPMX invests mostly in common stocks but also holds physical gold and silver bullion.

An important factor that sets aside VGPMX is that it tracks only a select set of gold mining companies that have strong balance sheets and ones that are able to withstand even when facing a $1000 an ounce gold prices.

Name Ticker Inception year AUM Avg. Daily Vol. Yield Expense Ratio
Vanguard precious metals and mining fund VGPMX 1984 $2.2 billion - 1.72% 0.35%

6.  SGOL (ETFS Physical Swiss Gold Shares ETF)

SGOL (ETFS Physical Swiss Gold Shares ETF)

SGOL (ETFS Physical Swiss Gold Shares ETF)

The ETF Physical Swiss Gold ETF is a unique ETF product which tracks the spot gold price minus the holding costs based on the gold bars held at the vault in Zurich. The ETF is issued by ETF Securities and the SGOL ETF offers investors with concerns on the location of the gold bullion. SGOL is structured as a guarantor trust which allows for more purchase an storage of the gold. The downside being that SGOL attracts higher capital gains.

Name Ticker Inception year AUM Avg. Daily Vol. Spread Expense Ratio
ETFS Physical Swiss Gold Shares ETF SGOL 2009 $960.03 million $6.64 0.04% 0.39%

 

Besides the above Gold ETF’s there are many different products that cater to the different investment/trading styles of the investor/trader. Overall, here is a broad list of the top 5 Gold ETF’s on the basis of the lowest Expense Ratio.

Symbol ETF Name Inception ER Expenses Rating
IAU iShares Gold Trust ETF 21-01-05 0.25% A+
UBG ETRACS CMCI Gold Total Return ETN 01-04-08 0.30% A
SGOL ETFS Physical Swiss Gold Shares ETF 09-09-09 0.39% A
GLD SPDR Gold Shares ETF 18-11-04 0.40% A-
OUNZ Van Eck Merk Gold Trust ETF 16-05-14 0.40% A-

Source: ETFDB.com

The strategy and maybe the purpose behind investing in gold ETF is to track the performance of the underlying asset. Given the way different gold ETFs are structured, investors now have a wide choice of gold ETFs to trade. For example as shown in this article, you can look to trading DUST which is a leveraged gold ETF that offers three times the inverse exposure to the Gold miners index. At the same time conservative investors can look to investing in just the GLD or IAU gold ETFs which are known for their liquidity and low expense ratios. Depending on what your investing style may be, there is bound to be a gold ETF that already exists, whether you want to trade gold, gold mining companies, or the index tracking the gold miners or simply investing in leveraged ETFs to gain larger exposure to the underlying asset being tracked by the ETF in question.

Gold commodity exchange traded funds offer a simple way for investors to track and invest in the performance of gold without actually having to own any gold. Trading Gold ETFs give the advantage of simplicity. For example, trading gold ETF such as GDX gives you exposure to a basket of mining companies than having to individually track and invest in the mining companies which can get complex after a certain number of stocks. Add to this the brokerage commissions and it soon becomes clear why trading gold ETFs are a better bet. Besides the above factors, trading ETFs come with the flexibility of capital gains which are deferred until the sale of the ETF which gives investors some form of advantage over other investments such as mutual funds.

Al Hill Administrator
Co-Founder Tradingsim
Al Hill is one of the co-founders of Tradingsim. He has over 18 years of day trading experience in both the U.S. and Nikkei markets. On a daily basis Al applies his deep skills in systems integration and design strategy to develop features to help retail traders become profitable. When Al is not working on Tradingsim, he can be found spending time with family and friends.
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