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 different gold investment vehicles — ETFs, mutual funds, gold bars and coins or gold mining stocks — can help an investor determine which option is best suited to their personal investment situation.
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.
ETFs may also provide deep liquidity and access to the market to rebalance and position exposures. 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
Gold mutual funds provide investors with the same daily liquidity as gold ETFs, but they do not trade intraday on national exchanges, as do ETFs. And many mutual funds that hold gold in their portfolio 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
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 additional factors beyond the price of gold — such as profitability, industry competition, and other financial and operational decisions.
Gold Bars and Coins
Gold bars and coins remain the most popular way that global investors access gold. But that habit may be shifting. In 2020, for example, we saw gold-backed ETFs reach record highs. Although directly holding bars and coins has a high level of transparency given 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.
For many investors, the case for gold ETFs may be strong relative to 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. Since that time, gold investing via gold-backed ETFs has grown to US$191 billion in assets.3
Global investors have responded to eroding market conditions and rising inflation by placing assets into gold-backed ETFs as market volatility, geopolitical instability, and economic uncertainty have risen throughout 2022— tapping into the diversification, liquidity and risk-adjusted returns that an allocation to gold may potentially offer.4
In November 2004, the World Gold Council partnered with SPDR ETFs to launch SPDR® Gold Shares, the first US gold-backed exchange traded fund. SPDR® Gold Shares’s arrival made it convenient and cost effective for investors to hold gold in their portfolios. Since then, SPDR® Gold Shares has reached over US$50.5 billion in assets,5 making it the largest and most liquid gold-backed ETF in the world.6
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.
SPDR® Gold Shares the world’s largest and most liquid gold-backed ETF offers strategic, long-term investors access to the gold market.7
1 Bloomberg Finance, L.P., and State Street Global Advisors. Note: SPDR® Gold Trust average daily bid-ask spread is 0.01% and tracking error is 0.00406 from 01/01/2011 to 09/30/2022. Effective March 20, 2015, the SPDR Gold Trust 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.
2 Morningstar Direct; Note: Average Gross Expense Ratio (%) for ETFs and Mutual Funds are 0.55% and 0.85%, respectively. Average Prospectus Net Expense Ratio for ETFs and Open-end Mutual Funds oldest Share class as defined by Morningstar, as of October 31, 2022.
3 World Gold Council – Global gold-backed ETF flows September 30, 2022.
4 Diversification: Source: Bloomberg Finance L.P and State Street Global Advisors, as of September 30, 2022. Gold has demonstrated a low (or sometimes negative) correlation to many financial asset indices over the last 20 years, with a 0.04 correlation to the S&P 500 Index and a 0.32 correlation to the Bloomberg Barclays Aggregate Bond Index from September 30, 2002 – September 3, 2022. Liquidity: Source: World Gold Council, as of 9/30/2021. Gold has maintained an average daily trading volume of US$129 billion compared to an average daily trading volume for the S&P 500 of US$246 billion for the period 1/1/2021 – 12/31/2021. Returns: Bloomberg Finance L.P. and State Street Global Advisors. On a longer-term basis, gold has returned -0.6% over a 10-year period from 9/30/2012 to 9/30/2022, and 8.5% for the 20 years from 9/30/2002 to 9/30/2022, while the S&P 500 provided a return of 11.69% and 9.84%, respectively, for the same periods ended 9/30/2022. Notes: gold is represented by LBMA gold price PM (US$/oz.). Past performance is not a reliable indicator of future performance.
5 Bloomberg Finance L.P. and State Street Global Advisors, as of September 30, 2022.
6 Bloomberg Finance L.P. and State Street Global Advisors, data as of September 30, 2022.
7 Bloomberg Finance L.P. and State Street Global Advisors, data as of September 30, 2022.
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.
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.
The ability to quickly buy or sell an investment in the market without impacting its price. Trading volume is a primary determinant of liquidity.
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 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.
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.
All figures are in USD unless otherwise noted.
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.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent. Nothing on this web page constitutes investment advice and should not be relied upon as such. The value of units in the SPDR® Gold Shares ETF (the “Fund”) may fall or rise. Past performance of the Fund is not indicative of future performance. Distributions from the Fund are contingent on dividends paid on underlying investments of the Fund and are not guaranteed. Listing of the Fund on the HKEX/ SGX does not guarantee a liquid market for the units and the Fund may be delisted from the HKEX/ SGX. The Fund’s Prospectus is available from State Street Global Advisors or can be downloaded from http://www.spdrgoldshares.com/
Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs. ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs’ net asset value. Brokerage commissions and ETF expenses will reduce returns.
Past performance is not a reliable indicator of future performance.
Diversification does not ensure a profit or guarantee against loss.
Investing in commodities entails significant risk and is not appropriate for all investors.