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 — 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 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 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 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. 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® (GLD®). 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 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 $50.5 billion in assets,5 making it the largest and most liquid gold-backed ETF in the world.6 In 2018, we launched GLDM®, 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.
1Bloomberg Finance, L.P., and State Street Global Advisors. Note: SPDR® Gold Trust GLD 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 (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 MiniShares® Trust (GLDM®) average bid-ask spread is 0.06% and tracking error is 0.000135 from June 26, 2018 (fund inception) to September 30, 2022. GLDM has used LBMA Gold Price PM as the reference benchmark price of gold in calculating the NAV of the Trust.
2Morningstar 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.
3World Gold Council – Global gold-backed ETF flows September 30, 2022.
4Diversification: 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 30, 2022. Liquidity: Source: World Gold Council, as of 9/30/2021. Gold has maintained an average daily trading volume of $129 billion compared to an average daily trading volume for the S&P 500 of $246 billion for the period 1/1/2021 – 12/31/2021. Returns: Bloomberg Finance L.P. and State Street Global Advisors. On a longer-term basis, gold has returned -0.6% over a 10-year period from 9/30/2012 to 9/30/2022, and 8.5% for the 20 years from 9/30/2002 to 9/30/2022, while the S&P 500 provided a return of 11.69% and 9.84%, respectively, for the same periods ended 9/30/2022. Notes: gold is represented by LBMA gold price PM ($/oz.). Past performance is not a reliable indicator of future performance.
5Bloomberg Finance L.P. and State Street Global Advisors, as of September 30, 2022.
6Bloomberg Finance L.P. and State Street Global Advisors, data as of September 30, 2022.
7Bloomberg 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.
For SPDR® Gold Trust and SPDR® Gold MiniShares® Trust:
Investing involves risk, and you could lose money on an investment in each of SPDR® Gold Shares Trust (“GLD®”) and SPDR® Gold MiniShares® Trust (“GLDM®”), 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 MiniShares® Trust (“GLDM®”):
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 +44 (0)20 3395 6888.
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. MiniShares® and GLDM® are registered trademarks of WGC USA Asset Management Company, LLC used with the permission of WGC USA Asset Management Company, LLC.
ETFs trade like stocks, are subject to investment risk and will fluctuate in market value. The investment return and principal value of an investment will fluctuate in value, so that when shares are sold or redeemed, they may be worth more or less than when they were purchased. Although shares may be bought or sold on an exchange through any brokerage account, shares are not individually redeemable from the fund. Investors may acquire shares and tender them for redemption through the fund in large aggregations known as “creation units.” Please see the fund’s prospectus for more details.
NOTICE TO PERSONS IN THE UNITED KINGDOM ("UK")
GLD and GLDM is permitted to be marketed in the UK pursuant to either Article 42 of European Union Alternative Investment Fund Managers Directive (Directive 2011/61/EU) ("AIFMD") (as implemented under national laws); or (ii) can otherwise be lawfully offered or sold (including on the basis of an unsolicited request from a professional client).
GLD and GLDM is an alternative investment fund for the purpose of the European Union Alternative Investment Fund Managers Directive (Directive 2011/61/EU) ("AIFMD"). For purposes of the AIFMD, World Gold Trust Services, LLC is designated as the alternative investment fund manager ("AIFM") of GLD and GLDM.
For Professional Clients Only
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.
This material is for your private information. The views expressed are the views the SPDR® Gold Strategy Team and are subject to change based on market and other conditions. The opinions expressed may differ from those with different investment philosophies.
All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
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