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Best Gold ETFs

The universal symbol for wealth and elegance, gold is a rare precious metal that doesn’t tarnish, and it’s ideal for currency and trading.

Among the most ancient civilizations, they were easily transferred amongst inhabitants of those civilizations. But gold has always been more than just a practical choice for money. It’s a shiny and beautiful element that can be melted down into jewelry and other desirable commodities.

The United States used gold to back the dollar until 1971 when President Nixon stopped the practice of selling gold to foreign dollar buyers. Most industrialized nations switched to a floating exchange rate system at this time and private ownership of gold bullion became publicly accessible.

Adding gold to a portfolio of stocks was seen as a diversification tool, but holding bullion isn’t practical for the average American. Financial firms realized this and set to work developing gold-tracking funds. Van Eck launched the first gold mutual fund in 1968, but an ETF backed by gold wasn’t introduced until 2003. Gold ETFs are the best vehicles if you’re looking to add it to your portfolio.

Why buy gold?

Gold as an asset has a couple of benefits for your portfolio. For starters, it’s a hedge not only against stocks, but inflation, too. If interest rates rise quickly and dollars become expensive to lend and borrow, gold will still retain its purchasing power. Realize, though, that gold is subject to volatility just like stocks, sometimes with even more vigor.

Gold would’ve been a good investment during the Great Depression, but the metal suffered 37 years of decline from 1934 to 1971. Once Nixon removed the gold standard, prices skyrocketed for a decade and before topping out at $2,195 in January 1980. After the dot-com bubble, gold received another 10-year boost but has failed to reclaim its 1980 highs. If long-term swings like this make you uneasy, gold might not be the best asset for you.

Advantages of gold ETFs over physical gold

Gold ETFs make it easy to buy and sell gold-backed assets on an exchange. You won’t deal with the hassle of obtaining and holding bullion, a process that’s both expensive and tedious. Gold dealers charge buyers something called “premium over spot price,” which is a fancy way of saying that production costs are passed on to you. This extra cost can vary from dealer to dealer, but you’ll be paying over the listed price no matter where you go.

With a gold ETF, you won’t need to store bullion and you’ll get expense ratios far cheaper than dealer premiums. You only need a brokerage account to add gold to your portfolio. Like stocks and bonds, gold ETFs are all different. Here are the criteria we used to select the best gold ETFs on the market:

Attributes of quality gold ETFs:

  • Low expense ratio: As always, the most important aspect of any fund is the cost. Some gold funds have outrageous expense ratios, especially if they use leverage. If you come across a triple-leveraged fund with a 1.25% expense ratio, turn around and run in the opposite direction. Gold ETFs can’t diversify like stock index funds, so paying extra for managers doesn’t make a lot of sense.
  • Low spreads: Gold ETFs often have wider bid/ask spreads than stock ETFs, sometimes as high as 1.8%. You’ll want a fund with a low spread; try to look for something under 0.15%.
  • Physical gold vs. futures: Not all gold funds hold physical gold. Some buy futures contracts for specific gold-tracking indexes. Physical gold is treated as a collectible by the IRS and taxed at a higher rate than equity-based capital gains. Physical gold funds usually have lower expense ratios, so the size and length of investment matters.

Best gold ETFs

We’ve ranked the top six gold ETFs based on a combination of the three factors listed above. A low expense ratio gets the most weight, but consideration is given to spreads and holdings, too.

1. GraniteShares Gold Trust ETF

Symbol: BAR
Expense Ratio: 0.20%
Spread: 0.02%
Holdings: Physical gold

The GraniteShares Gold Trust ETF is one of the newest offerings and it’s been worth the wait with a cheap expense ratio and low spread. The fund holds gold bars in a vault in London which helps it closely track the market price. It’s very tough to beat this combination of low cost and tradeability, but it’s still a relative newcomer and just celebrated its first birthday.

2. ETFS Physical Swiss Gold Shares ETF

Symbol: SGOL
Expense Ratio: 0.39%
Spread: 0.02%
Holdings: Physical gold

You’re paying a higher expense ratio for this fund, but the spread is low and the gold bars are held in a Swiss vault, providing extra liquidity. Cheaper funds like the GraniteShares Gold Trust have reached the market and SGOL might drop off this list soon, but right now the cost and liquidity are a great combination.

3. iShares Gold Trust ETF

Symbol: IAU
Expense Ratio: 0.25%
Spread: 0.09%
Holdings: Physical gold

One of the oldest and largest funds on this list, the iShares Gold Trust has collected more than $10 billion in assets. Despite the fact that it’s an older vehicle, it sports one of the lowest expense ratios of any fund that tracks physical gold. IAU has been trading since 2005 and has a consistent track record and recognizable name.

4. iShares Gold Strategy ETF

Symbol: IAUF
Expense Ratio: 0.25%
Spread: 0.09%
Holdings: Futures contracts

The Gold Strategy ETF from iShares is different than its big brother IAU because it doesn’t hold physical gold. The fund allocates most of its assets to futures contracts while holding a small position in IAU itself. This strategy helps the fund correlate well with the price of real gold, but keeps tax obligations at the reduced capital gains rate.

5. iShares MSCI Global Gold Miners ETF

Symbol: RING
Expense Ratio: 0.39%
Spread: 0.18%
Holdings: Equity

Gold doesn’t just appear, it has to be extracted from the ground. Mining companies that dig for gold are often publicly-traded and this iShares MSCI Global Gold Miners ETF gives you exposure to some of the largest gold mining firms in the world. The expense ratio is a little higher than most funds on this list, but you’ll save at tax time when you pay capital gains rates on your holdings.

6. Perth Mint Physical Gold

Symbol: AAAU
Expense Ratio: 0.18%
Spread: 0.08%
Holdings: Physical gold

Want to redeem your shares for actual gold? The Perth Mint Physical Gold ETF will let you. Of course, you’ll need to come a long way; the fund tracks gold bars held in an Australian vault. Still, the fund tracks the price of gold very closely and it’s got the cheapest expense ratio of any gold ETF currently on the market. Accurate tracking, low costs, and physical gold you can touch? You can’t ask for much more than that.

Final thoughts

Gold isn’t meant to be a big part of your investment strategy. You won’t always post gains when stocks go down, and gold prices sometimes drop during recessions. Instead, think of gold as an insurance plan against high inflation or economic crisis. It’s there for security, not to make you rich. Use one of these funds and you’ll see the best results.

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