Top Gold ETFs in 2024

There are several ways to invest in gold, ranging from directly buying gold bullion to more indirect methods like owning shares in public mining companies. Some funds invest in physical gold, while others manage portfolios of gold-related stocks.

For most retail investors, one of the easiest and most cost-effective ways to gain exposure to gold is through exchange-traded funds (ETFs) that hold gold as their underlying asset. ETFs offer instant diversification and come with relatively low costs. Here’s a look at some of the most popular gold ETFs.

Top gold ETFs

SPDR Gold Shares (GLD)

GLD is one of the largest and most well-known gold ETFs. It invests directly in physical gold, making its performance closely tied to gold’s spot price.

• 2024 YTD performance: 23.6%
• Five-year annual return: 10.8%
• Expense ratio: 0.40%

iShares Gold Trust (IAU)

Similar to GLD, IAU tracks the price of gold by holding gold bars in vaults worldwide. It offers a lower expense ratio compared to GLD.

• 2024 YTD performance: 23.8%
• Five-year annual return: 10.8%
• Expense ratio: 0.25%

VanEck Gold Miners ETF (GDX)

GDX is focused on major global mining companies that extract gold. Some of the companies also mine other metals like silver and copper.

• 2024 YTD performance: 26.4%
• Five-year annual return: 8.9%
• Expense ratio: 0.51%

VanEck Junior Gold Miners ETF (GDXJ)

GDXJ targets small-cap mining companies, with over 50% of its holdings in Canadian firms that generate a significant portion of their revenue from gold and silver mining.

• 2024 YTD performance: 25.5%
• Five-year annual return: 6.1%
• Expense ratio: 0.52%

GraniteShares Gold Trust (BAR)

BAR invests in physical gold stored in a London vault, managed by ICBC Standard Bank. Its price is closely aligned with gold’s spot price, and it offers one of the lowest expense ratios.

• 2024 YTD performance: 23.9%
• Five-year annual return: 11.1%
• Expense ratio: 0.175%

Why invest in gold

Investors may consider gold an appealing investment for several reasons:

• Diversification: One of the main reasons retail investors purchase gold ETFs is to diversify their portfolios. By holding a variety of assets, investors can reduce the risk associated with being too heavily invested in any single one.
• Low Correlation to the Stock Market: Historically, gold has exhibited a low correlation with the stock market, helping smooth out portfolio returns. For instance, during the 2008 financial crisis, while the S&P 500 fell by 37%, gold prices increased by 2%. More recently, gold prices surged following the collapse of Silicon Valley Bank.
• Inflation Hedge: Gold has historically performed well during periods of high inflation, such as in the 1970s. Though it’s often seen as a hedge, it’s important to note there’s no guarantee gold will rise in line with inflation.
• Safe Haven Asset: In times of political or economic instability, gold is often seen as a safe haven. Investors tend to turn to gold, moving away from more volatile assets during periods of uncertainty.

With its strong reputation as a portfolio diversifier and a defensive store of value, gold continues to be a go-to option for many investors.

The disadvantages of buying gold

Despite its appeal, gold has several drawbacks:

• Short-Term Price Volatility: Although gold has maintained its value over time, it can experience short-term price swings. For instance, in 2021, many gold funds lost value as investors shifted toward riskier assets like stocks and cryptocurrencies. As market conditions change, investors should be aware of these potential fluctuations.
• Challenging Valuation: Unlike stocks, which can be evaluated using earnings or cash flow metrics, gold’s value can be harder to estimate, making it difficult for some investors to gauge its worth.
• No Cash Flow: Gold does not generate income like dividends or interest, which can be a drawback for investors seeking passive income.
• Potential for Higher Taxes: Depending on the type of gold asset, profits from gold ETFs may be taxed at a higher rate, as collectibles, rather than at the long-term capital gains rate. This generally applies to gold held outside of tax-advantaged accounts like 401(k)s or IRAs.
• Better Long-Term Returns Elsewhere: While gold may offer strong performance in certain periods, long-term investors often see better returns in diversified stock portfolios or stock ETFs.

Considering these pros and cons can help investors decide whether gold fits their financial goals and risk tolerance.

How to buy gold ETFs

When considering an investment in gold ETFs, you need to decide whether you prefer exposure to physical gold or shares in gold mining companies. These two types of assets come with different risk profiles.

Here are four steps to help guide your investment in gold ETFs:

• Define Your Financial Goals: Your choice of investments should align with your financial objectives. For instance, someone saving for a second home will have different priorities compared to someone planning for a child’s college education. Let your financial goals steer your investment decisions.
• Research Gold Funds: Evaluate gold ETFs by reviewing their performance history, expense ratios, top holdings, and assets under management. This information is typically available in the fund’s prospectus.
• Assess Your Asset Allocation: Take stock of your current assets and ensure that your portfolio is well-balanced. Diversification is key to managing risk effectively.
• Stay Informed: Regularly review your investments to stay on top of your financial strategy and make necessary adjustments. Utilize resources from your broker, such as financial planning services, and don’t hesitate to ask questions. Investing is not a hands-off activity; it requires ongoing attention.

Gold ETFs can be purchased through any reputable broker offering stock trading services.

In Conclusion

Gold continues to hold significant appeal as a hedge against market volatility and geopolitical uncertainties. For investors, it remains a valuable asset for diversifying portfolios and managing risk.