Investors have several options to consider when looking to gain exposure to gold and tap into its diverse potential benefits. Understanding the potential advantages and considerations for the different gold investment vehicles – be it ETFs, mutual funds, gold bars and coins or gold mining stocks, can help an investor to determine which option is best suited to their personal investment situation.
Comparing Gold Investment Vehicles
Gold-Backed ETFs offer investors gold exposure through the many benefits of passive ETF investing, including the access and transparency of intraday trading on national exchanges and lower average expense ratios than those of many of the other options. Physically backed gold ETFs, like SPDR’s gold ETFs, provide a cost-effective way to access gold bullion through a historically low-transaction-cost vehicle with low bid-ask spreads and low tracking error1 to the market price of gold. They also may provide deep liquidity and access to the market to rebalance and position exposure. But it’s important for investors to note that not all gold ETFs are created equal — or invest exclusively in gold bullion — and investors should carefully review the holdings to determine how much of the ETF’s portfolio is invested in physical gold. This is especially true when comparing gold mining ETFs and gold mutual funds that invest only a small portion of their assets in gold.
Gold Mutual Funds provide investors with the same daily liquidity as gold ETFs do, but they do not trade intraday on national exchanges, as do ETFs. And many mutual funds that hold gold in their portfolio of investments may not exclusively invest in gold, which means they may not track gold’s price movements and reap the full value of gold’s diverse potential benefits. Mutual funds also tend to maintain a higher total expense ratio than that of many ETFs.2
Gold Mining Stocks and ETFs are another way that investors can gain exposure to gold. But investing in these companies is not the same as directly investing in gold bullion or a gold-backed ETF. These represent investments in gold mining companies and operations, and these companies may be impacted by certain additional factors beyond the price of gold — such as profitability, industry competition, and other financial and operational decisions.
Gold Bars and Coins remain the most popular way that global investors access gold. But that habit may be shifting — especially in 2020, as we have seen gold-backed ETFs reach record highs this year. Although directly holding bars and coins has a high level of transparency with physical possession, investors are often required to pay a premium over the spot price of gold for their purchase. Cost and liquidity considerations also come into play when holding bars and coins outright — including costs for insurance, transportation and safekeeping, each of which can impact the underlying performance benefits realized.
Gold futures are often used by larger or institutional investors looking to leverage their portfolios. Gold futures provide intraday trading and a way to manage underlying risks of other securities held in their portfolio. Gold futures require unique knowledge about the gold market and are not typically the vehicle of choice for the average investor. Gold futures are not physically backed by gold, and they carry defined expiration dates, which require holders to roll over the contract according to a scheduled expiry to maintain their gold exposure. Although gold futures are generally traded in larger positions with lower brokerage commissions due to their size, the associated brokerage and roll costs need to be considered when determining the total cost of ownership.
Choosing ETFs for Gold Exposure
For many investors, the case for gold ETFs may be strong relative to those for other gold investment vehicles, particularly in terms of accessibility, transparency, and cost. ETFs often provide a higher degree of flexibility for investors at a potentially lower overall cost than many of the other options do – and gold-backed ETFs are no exception.
Gold ETFs have grown to record levels in terms of popularity and AUM since 2004, when SPDR ETFs introduced the first physically backed gold ETF designed to track the price of gold bullion, SPDR Gold Shares® (GLD®). Since that time, gold investing via gold-backed ETFs has grown to $239 billion in assets.3 2020 has seen gold ETF investing hit record highs, adding 21% — or US $49.1 billion4 — to global gold-backed ETF assets through July 31, and providing investors a cost-effective and efficient way to access gold’s unique benefits during 2020’s market volatility.
Although gold-backed ETFs have seen positive inflows from all regions during 2020, North American investors were responsible for adding nearly 75% of July’s total $9.7 billion of inflows into global gold-backed ETFs — that’s US $7.0 billion.5 Global investors — US investors in particular — have responded to eroding market conditions, placing assets into gold-backed ETFs as market volatility and uncertainty have risen – tapping into the diversification, liquidity and risk-adjusted returns that an allocation to gold may potentially offer6.
Work with a Global Gold Leader
In November 2004, the World Gold Council partnered with SPDR ETFs to launch GLD®, the first US gold-backed exchange traded fund. GLD’s arrival made it convenient and cost effective for investors to hold gold in their portfolios. Since then, GLD has reached over $78 billion in assets,7 making it the largest and most liquid gold-backed ETF in the world.8 In 2018, we launched GLDMSM, a low-cost gold-backed ETF option, providing an innovative low-cost solution to meet investor demands.
Both ETFs provide investors a relatively efficient and liquid way to access the gold bullion market through physically backed ETFs. Learn more about our heritage in the gold market, or read more about our gold ETFs below.
Invest in SPDR Gold ETFs
SPDR Gold Shares® (GLD®) the world’s largest and most liquid gold-backed ETF offers strategic, long-term investors access to the gold market.9
When considering similar products, it’s important to understand both liquidity and overall costs — and the impact that each can have on your portfolio.
1 Source: Bloomberg Finance L.P. & State Street Global Advisors. Note: SPDR® Gold Trust GLD average daily bid-ask spread is 0.01% and tracking error is 0.00424 from 01/01/2011 to 09/30/2020. Effective March 20, 2015, the SPDR Gold Trust (GLD) adopted the LBMA Gold Price PM as the reference benchmark price of gold in calculating the Net Asset Value (NAV) of the Trust. Prior to that date, the Trust used the London PM Fix as the reference benchmark price in calculating the NAV. SPDR® Gold MiniSharesSM Trust GLDM average bid-ask spread is 0.07% and tracking error is 0.00016 from June 26, 2018 (fund inception) to September 30,2020. GLDM has used LBMA Gold Price PM as the reference benchmark price of gold in calculating the NAV of the Trust.
2 Morningstar Direct; Note: Average Gross Expense Ratio (%) for ETFs and Mutual Funds are 0.55% and 0.89%, respectively. Average Prospectus Net Expense Ratio for ETFs and Open-end Mutual Funds oldest Share class as defined by Morningstar, as of September 30, 2020.
3 World Gold Council – Global gold-backed ETF flows July 2020, date as of August 6, 2020.
4 World Gold Council – Global gold-backed ETF flows July 2020, date as of August 6, 2020.
5 World Gold Council – Global gold-backed ETF flows July 2020, date as of August 6, 2020.
6Diversification: Source: Bloomberg Finance L.P and State Street Global Advisors, as of September 30,2020. Gold has demonstrated a low (or sometimes negative) correlation to many financial asset indices over the last 20 years, with a 0.05 correlation to the S & P 500 Index and a 0.18 correlation to the Bloomberg Barclays Aggregate Bond Index from September 30, 2000 – September 30, 2020. Liquidity: Source: World Gold Council, as of 9/30/2020. Gold has maintained an average daily trading volume of $189 billion compared to an average daily trading volume for the S&P 500 of $212 billion for the period 1/1/2020 – 9/30/2020. Returns: Bloomberg Finance L.P. and State Street Global Advisors. During 2020 volatility, based on average monthly returns from 1/1/2020-9/30/2020, gold has provided a return of 24.57%, while the S&P 500 provided a return of 5.89 for the same period. On a longer-term basis, gold has returned 3.74% over a 10-year period from 9/30/2010 to 9/30/2020, and 10.13% for the 20 years from 9/30/2000 to 9/30/2020, while the S&P 500 provided a return of 13.73% and 6.41%, respectively, for the same periods ended 9/30/2020. Notes: gold is represented by LBMA gold price PM ($/oz.). Past performance is not a guarantee of future results.
7 Bloomberg Finance L.P. and State Street Global Advisors, as of September 30, 2020.
8 Bloomberg Finance L.P. and State Street Global Advisors, data as of September 30, 2020.
9 Bloomberg Finance L.P. and State Street Global Advisors, data as of September 30, 2020.
Bid-Ask Spread, or Spread The difference between the highest price a buyer is willing to pay for an asset and the lowest price the seller will accept to sell. Bid-ask spreads are a key measurement of the liquidity of an asset or security.
Futures Contracts Financial contracts that obligate buyers and sellers to buy or sell an asset — often physical commodities or financial instruments — at a predetermined future date and price. Futures contracts also stipulate the quality and quantity of the underlying asset and are standardized to facilitate trading on a futures exchange. Some futures call for physical delivery; others are settled in cash.
Liquidity The ability to quickly buy or sell an investment in the market without impacting its price. Trading volume is a primary determinant of liquidity.
Roll Costs The potential cost associated with selling an expiring futures contract and purchasing a longer-dated contract to maintain exposure to a particular asset. When the longer-dated contract is more expensive than the expiring contract, the market is said to be in contango; therefore, “rolling” into the longer-dated contract can be a drag on performance.
Total Cost of Ownership The purchase price of an asset plus the costs of operation.
Tracking Error Tracking error is a measure of how consistent a portfolio’s return is with that of its benchmark. In reality, no indexing strategy can perfectly match the performance of the index or benchmark, and the tracking error quantifies the degree to which the strategy differs from the index or benchmark by measuring the annualized standard deviation between the two values.
Volatility The tendency of a market index or security to jump around in price. Volatility is typically expressed as the annualized standard deviation of returns. In modern portfolio theory, securities with higher volatility are generally seen as riskier due to higher potential losses.
Marketing Communication for Professional Investors Only
For SPDR® Gold Trust and SPDR® Gold MiniSharesSM Trust:
Investing involves risk, and you could lose money on an investment in each of SPDR® Gold Shares Trust (“GLD®”) and SPDR® Gold MiniSharesSM Trust (“GLDMSM”), a series of the World Gold Trust (together, the “Funds”).
Commodities and commodity-index linked securities may be affected by changes in overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes, or political and regulatory developments, as well as trading activity of speculators and arbitrageurs in the underlying commodities.
Investing in commodities entails significant risk and is not appropriate for all investors.
Important Information Relating to SPDR® Gold Trust (“GLD®”) and SPDR® Gold MiniSharesSM Trust (“GLDMSM”):
The SPDR Gold Trust (“GLD”) and the World Gold Trust have each filed a registration statement (including a prospectus) with the Securities and Exchange Commission (“SEC”) for GLD and GLDM, respectively. Before you invest, you should read the prospectus in the registration statement and other documents each Fund has filed with the SEC for more complete information about each Fund and these offerings. Please see each Fund’s prospectus for a detailed discussion of the risks of investing in each Fund’s shares. The GLD prospectus is available by clicking here and the GLDM prospectus is available by clicking here. You may get these documents for free by visiting EDGAR on the SEC website at sec.gov or by visiting spdrgoldshares.com. Alternatively, the Funds or any authorized participant will arrange to send you the prospectus if you request it by calling +41 44 245 70 00.
None of the Funds is an investment company registered under the Investment Company Act of 1940 (the “1940 Act”). As a result, shareholders of each Fund do not have the protections associated with ownership of shares in an investment company registered under the 1940 Act. GLD and GLDM are not subject to regulation under the Commodity Exchange Act of 1936 (the “CEA”). As a result, shareholders of each of GLD and GLDM do not have the protections afforded by the CEA.
Shares of each Fund trade like stocks, are subject to investment risk and will fluctuate in market value.
The values of GLD shares and GLDM shares relate directly to the value of the gold held by each Fund (less its expenses), respectively. Fluctuations in the price of gold could materially and adversely affect an investment in the shares. The price received upon the sale of the shares, which trade at market price, may be more or less than the value of the gold represented by them.
None of the Funds generate any income, and as each Fund regularly sells gold to pay for its ongoing expenses, the amount of gold represented by each Fund share will decline over time to that extent.
The World Gold Council name and logo are a registered trademark and used with the permission of the World Gold Council pursuant to a license agreement. The World Gold Council is not responsible for the content of, and is not liable for the use of or reliance on, this material. World Gold Council is an affiliate of the Sponsor of each of GLD and GLDM.
GLD® is a registered trademark of World Gold Trust Services, LLC used with the permission of World Gold Trust Services, LLC. MiniSharesSM and GLDMSM are service marks of WGC USA Asset Management Company, LLC used with the permission of WGC USA Asset Management Company, LLC.
The Trust has not been approved by the Swiss Financial Market Supervisory Authority FINMA ("FINMA") as a foreign collective investment scheme which may be offered to non-qualified investors pursuant to Article 120 of the Swiss Collective Investment Schemes Act ("CISA"). Accordingly, the Shares may only be offered, sold or otherwise made available in Switzerland to qualified investors, as defined Article 10(3) and (3ter) of the Swiss Collective Investment Schemes Act (“CISA”) and its implementing ordinance, at the exclusion of qualified investors with an opting-out pursuant to Art. 5(1) of the Swiss Federal Law on Financial Services ("FinSA") and without any portfolio management or advisory relationship with a financial intermediary pursuant to Article 10(3ter) CISA (“Excluded Qualified Investors”). Before investing please read the Trust’s Prospectus, Trust Indenture and annual financial statements. Prospective investors may obtain these documents free of charge from the Swiss Representative and Paying Agent, State Street Bank International GmbH, Munich, Zurich Branch, Beethovenstrasse 19, 8027 Zurich, as well as from the main distributor in Switzerland, State Street Global Advisors AG (“SSGA AG”), Beethovenstrasse 19, 8027 Zurich. For Shares offered, sold or otherwise made available in Switzerland, the registered office of the Swiss Representative is the place of jurisdiction and performance. The Trust or its delegates do not pay retrocessions to third parties as compensation for the offer of Shares in Switzerland.
This is a Marketing Communication
Investing involves risk including the risk of loss of principal.
Commodity funds may be subject to greater volatility than investments in traditional securities. Investments in commodities may be affected by overall market movements, changes in interest rates, and other factors, such as weather, disease, embargoes, and international economic and political developments.
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Information related to Mexico
This information does not constitute and is not intended to constitute marketing or an offer of securities and accordingly should not be construed as such. The Funds referenced herein have not been, and will not be, registered under the Mexican Securities Market Law (Ley del Mercado de Valores) and may not be publicly offered or sold in the United Mexican States. Disclosure documentation related to any of the aforementioned Funds may not be distributed publicly in Mexico and shares of the Funds may not be traded in Mexico.
UCITS SPDR ETFs
SPDR ETFs Europe I Plc and SSGA SPDR ETFs Europe II Plc issue SPDR ETFs, and are an open-ended investment company with variable capital having segregated liability between its sub-funds. The Company is organised as an Undertaking for Collective Investments in Transferable Securities (UCITS) under the laws of Ireland and authorised as a UCITS by the Central Bank of Ireland.
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US SPDR ETFs
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