Gold has held its appeal as a form of wealth dating back to ancient times, and today, people still invest in gold for a variety of reasons. Gold can serve as a store of value and a safe-haven asset for your portfolio while also providing diversification. The ability to invest in gold through ETFs is a relatively new concept (in the grand scheme of investing history), but investing in gold through ETFs can be advantageous, as it offers investors cost-effectiveness, liquidity, and convenience.
Here’s a closer look at why gold remains an appealing part of a balanced portfolio, why ETFs are a great way to gain exposure to it, and a brief overview of three of the top gold ETFs in today’s market.
Why Go Gold?
As mentioned above, gold has served as a store of value since ancient times. Essentially, it has retained its value over time through economic downturns and upswings, inflation, etc. Central banks can print more fiat currency, but gold is a finite, physical resource, so its price should increase in dollar terms when governments are printing more money. In addition, gold is rare. Believe it or not, all of the gold ever mined would fit into a 73-foot cube, according to investment company Abrdn.
In addition to these benefits, gold is also an instrument that can help investors diversify their portfolios beyond stocks and bonds, and it offers returns that are less correlated to traditional asset classes historically.
Why Use Gold ETFs?
While gold itself has been valued for centuries, gold ETFs are a relatively new concept, dating back to the launch of the first gold ETF in the United States, the SPDR Gold Shares ETF (NYSEARCA:GLD) in 2004. Gold ETFs offer several advantages and increase the accessibility of gold as an investment to a wider pool of investors.
First and foremost, gold ETFs offer investors enhanced liquidity. While buying and selling physical gold can be a cumbersome process of going to a gold dealer or buying gold online, buying a gold ETF is a much simpler and more convenient process; you can buy or sell with the click of a button in your brokerage account.
Furthermore, a gold ETF doesn’t require physical storage like physical gold. Your holdings are secure in your brokerage account, and you don’t have to worry about loss or theft. You also don’t have to pay for storage or insurance with an ETF. While gold ETFs charge a fee, just like any ETF, their expense ratios are often less than the expenses associated with buying, storing, and insuring physical gold.
Gold ETFs are an easy and convenient way for individual and institutional investors to invest in gold via the stock market. Here are three of the top options for investors interested in gaining direct exposure to the precious metal in this way.
1. SPDR GLD Shares (NYSEARCA:GLD)
As discussed above, GLD was the first gold ETF, and it is still the dominant investment vehicle in this space, with $55.0 billion in assets under management (AUM).
GLD has an expense ratio of 0.40%, meaning that an investor putting $10,000 into GLD would pay $40 in expenses over the course of the year.
GLD appears to be a transparent and secure option for investors. The GLD trust stores its physical gold in the vaults of its custodians, JPMorgan Chase (NYSE:JPM) and HSBC Bank (NYSE:HSBC) in New York, London, and Zurich. The gold physically held is audited annually as part of its financial audit.
2. iShares Gold Trust (NYSEARCA:IAU)
While GLD is the oldest and largest gold ETF, IAU from iShares is the second-largest, with $25.7 billion in AUM. IAU launched shortly after GLD in 2005.
Both GLD and IAU invest in gold, but the key advantage of IAU over GLD is its lower expense ratio of 0.25%. This means that an investor putting $10,000 into IAU would pay $25 in fees in year one.
IAU provides a list of the gold bars it owns on its website so investors can verify its holdings for themselves if they wish. IAU holds its gold bars in JPMorgan’s vaults in New York and London.
3. Aberdeen Standard Physical Gold Shares ETF (NYSEARCA:SGOL)
The Aberdeen Standard Physical Gold Shares ETF is another interesting option for investors looking for exposure to physical gold. SGOL is much smaller than GLD or IAU, with just $2.7 billion in AUM.
Launched in 2009, SGOL is cheaper than its two larger counterparts, with an expense ratio of just 0.17%. This means that an investor allocating $10,000 into SGOL would pay just $17 in fees during year one.
The disparity between fees becomes more apparent over time — assuming that each of these ETFs returns 5% and keeps its current expense ratio over the course of 10 years, an investor putting $10,000 into SGOL would pay just $261.81 in fees versus $383.70 for an individual investing the same amount in IAU and $610 for an investor putting the same amount into GLD.
SGOL also provides a list of the gold bars it owns on its site to give investors transparency regarding its holdings. SGOL’s gold is held in JPMorgan’s vaults in Zurich and London.
The Takeaway: A Welcome Addition to a Balanced Portfolio
In conclusion, gold is appealing to investors because it has been viewed as a store of value for centuries, and it can serve as a hedge against inflation due to its finite nature. It offers investors diversification, as its returns are typically uncorrelated with those of traditional asset classes. For these reasons, gold can serve as a useful asset in investor’s portfolios.
Because they offer these same benefits but give investors more liquidity and convenience in a cost-effective manner, gold ETFs are a great way to add exposure to gold to one’s portfolio.
All three of the ETFs discussed above are solid options for investors looking to do this, as all three are reliable options offering cost-effective and transparent direct exposure to gold. Of the three, I believe SGOL is the top choice for individual investors because it is the most cost-effective option with its 0.17% expense ratio. GLD and IAU offer more liquidity than SGOL with higher trading volumes, but all three offer sufficient liquidity for the average investor.
