Everything You Need to Know About Gold ETFs

Gold is a popular option for people looking to diversify their investment 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 stock market volatility.

One of the biggest drawbacks of buying gold has always been that it’s bulky and difficult to store. Many investors choose to avoid the hassle and expense of accumulating physical gold by purchasing shares in gold exchange-traded funds (ETFs) instead.

Here’s everything you need to know to help you decide if gold ETFs are 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
• Best-performing 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 a group of securities — like stocks, bonds and commodities — that investors can trade throughout the day via brokerage firms or fund managers. Gold ETFs are funds that hold gold-backed assets and are a way to invest in gold without buying physical gold.

ETFs can be a convenient way to hold the assets of several companies across an index, or within a specific industry or commodity sector, without having to manage a bunch of individual investments. In addition to gold, you can buy ETFs focused on other commodities, like corn or zinc.

There are different kinds of gold ETFs — some invest in physical gold, while others invest in the stock of gold mining companies. 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 a physically-backed gold ETF 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. Gold ETFs are also more liquid than gold itself.

ETFs that invest in stocks of gold companies

Some gold ETFs don’t hold the physical precious metal but invest in stocks of gold companies. Gold miner ETFs provide exposure to gold via investments in stocks of companies that mine gold or perform related activities, like providing financing to gold miners.

Leveraged gold ETFs

Leveraged ETFs use derivatives 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.

Both types of 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 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 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 is simple, and pricing is 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. 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. An ETF’s expense ratio is what an investor pays for the management and administration 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 generally: Gold is not income-generating and can experience price fluctuations due to market conditions. Gold can be volatile in the short term, so experts tend to recommend considering it a long-term investment.

Niche investment products like gold ETFs can be more expensive than passively-managed funds that track a big index like the S&P 500 and charge minimal fees. The average annual fee charged by gold ETFs, according to ETF.com, is 0.59% — that is, $59 for every $10,000 invested.

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 online trading platforms 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 you can buy, and you can seek them out 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 buying any other stock or ETF through your brokerage account.

Top Gold ETFs

There are 33 different gold-backed ETFs you can buy, according to ETF.com, some of which might be thinly traded. The best-performing gold ETF last year was GraniteShares Gold Trust (BAR). 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: $59.9 billion

iShares Gold Trust

• Ticker symbol: IAU
• Year founded: 2005
• Expense ratio: 0.25%
• Holdings: physical gold
• Assets under management: $28.9 billion

VanEck Vectors Gold Miners ETF

• Ticker symbol: GDX
• Year founded: 2006
• Expense ratio: 0.51%
• Holdings: gold mining company securities
• Assets under management: $13.8 billion

VanEck Vectors Junior Gold Miners

• Ticker symbol: GDXJ
• Year founded: 2009
• Expense ratio: 0.52%
• Holdings: gold mining company securities
• Assets under management: $4.3 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.com. 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?
People may choose to invest in gold ETFs rather than physical gold because owning shares in a gold ETF is more attainable and easier than holding physical gold. ETFs backed by physical gold can provide that exposure and diversification with a lower entry cost than buying gold bars or coins as an individual investor. If you buy physical gold, you will have to store it and protect it from theft.
What's the best way to buy gold and keep it as an asset?
There are a number of ways people can invest in gold. Some people prefer physical gold, although that can be illiquid and cumbersome to store. Gold ETFs offer exposure to gold within the framework of an ordinary trading account. There are also gold mutual funds, although these can carry higher expense fees than ETFs and may require paying a commission to trade. 


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?
Gold ETFs have some distinctive qualities investors should know about and research before buying: They can have higher expense ratios than diversified or index-based ETFs, and they can carry tax implications, especially if you intend to hold your gold ETF shares for less than a year. As with any ETF, past performance doesn't guarantee future returns, and gold can be a highly volatile asset. 
What is the minimum amount required to invest in gold ETFs?
One of the primary reasons investors may prefer investing in gold ETFs over buying gold bullion is that you don't have to invest a lot of money in gold ETFs. As with buying other types of ETFs, you only have to buy one share to invest, and sometimes even less, if fractional shares are offered. Some brokerages let you invest in ETFs for as little as $1.

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.

Summary of Contents

• What are gold ETFs?
• Benefits of investing in gold ETFs
• Risks of investing in gold ETFs
• How to invest in gold ETFs
• Best-performing 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

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