Everything You Need to Know About Gold ETFs
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After setting a new all-time high in 2024, gold is as popular as ever, especially for investors looking to diversify their portfolios. The precious metal has been traded for centuries and used as a store of value — meaning it maintains a stable value over time. Investors use it as a hedge against inflation and as a safe haven during periods of economic or stock market volatility.
One of the biggest drawbacks of buying gold has always been that it’s bulky and presents storage challenges. Enter gold exchange-traded funds (ETFs), which allows investors to gain exposure to gold while avoiding the hassle and expense of accumulating the physical metal.
Read on to learn more about gold ETFs and if they’re the right fit for your investment goals.
Table of contents
- What are gold ETFs?
- Benefits of investing in gold ETFs
- Risks of investing in gold ETFs
- How to invest in gold ETFs
- Top gold ETFs
- How are gold ETFs taxed?
- Where can you buy gold ETFs?
- Is buying gold ETFs right for you?
- Investing in gold ETFs FAQs
What are gold ETFs?
ETFs are securities classified as equities, similar to stocks and available in shares. Unlike mutual funds, investors can trade shares of ETFs throughout the day via brokerage firms or fund managers. Gold ETFs are funds that hold gold-backed assets or shares of companies involved in mining gold, and they provide a way to invest in gold without owning the physical metal.
ETFs can be a convenient way to gain exposure to several companies across an index or within a specific sector without having to manage a series of individual investments. In addition to gold, you can buy ETFs focused on other commodities, such as coffee and sugar.
It is important to understand that there are different kinds of gold ETFs. Some invest in physical gold, others invest in the stock of gold mining companies and some use gold derivatives and debt to leverage the price of gold into potential returns. Evaluating your investing goals and your timeline should help you determine what kind will be the best fit for your portfolio.
ETFs that invest in physical gold
Many gold ETFs invest directly in physical gold bullion. The advantages of buying an ETF backed by physical gold are that you get exposure to gold without having to hold it yourself, and you can buy in without needing to invest a significant sum. Additionally, gold ETFs are more liquid than gold itself.
ETFs that invest in stocks of gold companies
Other gold ETFs don’t hold the physical precious metal but invest in the stocks of gold companies. For example, gold miner ETFs provide exposure to gold via investments in shares of companies that mine gold or perform related activities, like providing financing to gold miners (i.e., gold streaming companies). These ETFs are impacted by market conditions and the performances of the companies in their holdings.
Leveraged gold ETFs
Leveraged ETFs use derivatives (e.g., options and futures) and debt to essentially magnify the market movement of the underlying securities, so they tend to offer greater returns than regular ETFs. Gold investors may be interested in attempting to amplify returns via a leveraged gold ETF. There are also inverse leveraged ETFs that increase in value when the prices of the underlying assets fall.
Be mindful that leveraged gold ETFs can be risky investments. These ETFs are highly complicated products intended for sophisticated investors because they multiply losses as well as gains.
Benefits of investing in gold ETFs
Investors are drawn to gold because it can act as a hedge against inflation and serve as a safe haven during economic and market volatility and downturns. Gold ETFs are a popular option for investors who want exposure to gold because they’re convenient. If you invest in a physically-backed gold ETF, the company that owns the gold is responsible for the expense of securing and storing the gold in vaults — you aren’t. Gold ETFs invested in stocks of gold mining and gold streaming companies can also provide exposure to gold indirectly, since these stocks tend to perform well when demand for — and pricing power of — gold is high.
Trading gold ETFs is simple and their share prices are transparent, which isn’t always the case if you’re trying to buy or sell gold bullion. Gold ETFs are far more liquid than actual gold because they’re easier to sell via the market. Additionally, online trading platforms allow you to research and track the performance of your gold ETF investments in real time.
Many brokerages let you trade ETFs commission-free, and ETFs tend to come with lower fees than mutual funds because they’re mostly passively managed. An ETF’s expense ratio is the annual fee investors pay for the management, administration and marketing of the fund.
Risks of investing in gold ETFs
Some of the risks associated with investing in gold ETFs are similar to the risks of investing in gold in general:
- Gold ETFs can experience price fluctuations due to market conditions.
- Gold can be a volatile short-term investment.
- Experts tend to recommend considering gold a long-term holding.
Gold ETFs can carry expense ratios that exceed funds that track large indices like the S&P 500. The average annual fee charged by gold ETFs, according to ETF.com, is 0.65% or $65 for every $10,000 invested.
Lastly, as previously mentioned, leveraged gold ETFs are particularly complicated and can be very risky for novice investors because they can magnify losses.
How to invest in gold ETFs
Investing in gold ETFs is fairly easy, and you can do so via a brokerage account or robo-advisor. If you don’t have an account yet, there are a lot of stock trading apps that will let you buy and sell gold investments with a few clicks, just like you would stocks or other funds.
Step 1: Find a gold ETF
There are numerous gold ETFs available, which can be found via the site or app of your preferred brokerage. See our list below to get an idea of some of the biggest and most popular gold ETFs available. You should also become familiar with the gold market and be aware of the current or “spot” price of gold.
Step 2: Analyze the ETF
Since gold ETFs can be backed with gold or gold-related assets, you'll need to determine which type of ETF is the best for you. Research each fund’s performance online, or seek out unbiased advice from a financial advisor — ideally, one who is a fiduciary required by law to prioritize your financial best interests.
When comparing gold ETFs, you want to look at their underlying assets, fund performance for at least the past five years, expense ratio and liquidity. You can find all of this information in each fund’s prospectus, which you can find on the ETF’s website or the SEC’s EDGAR database.
Step 3: Buy the gold ETF
Once you’ve decided which gold ETF is the best for your investment needs, buying it is as simple as placing a market or limit order through your brokerage account, just like you would with any other ETF or individual stock.
Top gold ETFs
There are 35 different gold-backed ETFs you can buy, according to ETF.com, some of which might be thinly traded. Check out some of the largest and better-known gold ETFs like the ones below before you make any investments.
SPDR Gold Shares
- Ticker symbol: GLD
- Year founded: 2004
- Expense ratio: 0.4%
- Holdings: Physical gold
- Assets under management: $56.4 billion
iShares Gold Trust
- Ticker symbol: IAU
- Year founded: 2005
- Expense ratio: 0.25%
- Holdings: Physical gold
- Assets under management: $27.1 billion
VanEck Vectors Gold Miners ETF
- Ticker symbol: GDX
- Year founded: 2006
- Expense ratio: 0.51%
- Holdings: Gold mining company securities
- Assets under management: $12.66 billion
VanEck Vectors Junior Gold Miners
- Ticker symbol: GDXJ
- Year founded: 2009
- Expense ratio: 0.52%
- Holdings: Gold mining company securities
- Assets under management: $4.18 billion
How are gold ETFs taxed?
You should be aware of the tax implications of investing in gold ETFs before purchasing. In particular, if you plan to invest in gold ETFs backed by physical gold, keep in mind that there are higher capital gains tax rates for commodities. Factor this expense into your investing plans.
The top tax rate for long-term investment in commodities is 28%, as opposed to the up to 20% tax rate for most other types of capital gains. That said, ETFs in general have a reputation for being more tax-efficient financial instruments than mutual funds because of the way a fund’s underlying assets are bought and sold.
Where can you buy gold ETFs?
You can purchase gold ETFs through the online platforms of major investment companies like Fidelity and Vanguard, as well as on trading apps like Public and Robinhood. These sites and apps provide information about the composition and past performance of funds that you can use to determine which gold ETF may make sense for you.
Is buying gold ETFs right for you?
In order to answer the question of whether or not you should buy gold ETFs, consider your overall investment profile, risk tolerance and long-term financial goals. If you plan to invest in physical gold, gold ETFs might be a better choice than buying gold bars or coins because ETFs are more convenient. In addition, trading is simple and pricing is transparent.
Keep in mind that tax expenses are an associated cost, and gold ETFs may have higher expense ratios than conventional index-based funds. Precious metals — including gold, silver, platinum and palladium — are an alternative asset class, and most mainstream financial advisors recommend allocating no more than 5% to 10% of your investment portfolio to them.
Investing in Gold ETFs FAQs
Why invest in gold ETFs instead of actually buying gold?
What's the best way to buy gold and keep it as an asset?
Gold futures are contracts betting on the price of gold at some point in the future. Futures contracts and other types of derivatives can be risky for novice investors. If you plan to invest in these instruments, make sure you understand the mechanics of how they work.
What should you know before buying shares of gold ETFs?
What is the minimum amount required to invest in gold ETFs?
Summary of everything you need to know about gold ETFs
Gold ETFs can be an appealing alternative for investors who want to add gold to their portfolio as a hedge against inflation or to diversify their nest egg. Before you invest in gold ETFs, conduct research to find the best gold ETFs suitable for your investment goals.
Although you can invest in gold ETFs with less money than you may need to buy gold bullion, both fund expense ratios and tax obligations are associated costs for gold ETF owners to consider. Some types of gold investments, such as leveraged gold ETFs, can be a serious risk — especially for unsophisticated investors. Keep that in mind when deciding how you want to invest.