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, 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. Today, global gold-backed ETFs hold 3,250 tons of gold.3 While gold-backed ETF flows can be volatile, the growth in these products shows that more investors are selecting ETFs for their gold allocation. 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 $207 billion in assets.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 $55.2 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.