Gold ETFs: Should You Invest in Gold ETFs?

Brandie E Blackler

 Over recent decades, gold has proven to be a popular asset for both traders and investors who want to hedge against various risks such as market turbulence, political unrest, recessions and inflation.

The gold market is very accessible and highly liquid. There are several ways investors can invest or trade gold, a popular one being gold ETFs.

Gold ETFs: An Introduction

Besides purchasing physical gold bullion, another method of trading or investing in gold is through Exchange-Traded Funds (ETFs).

Gold ETFs can be a highly liquid and low-cost option when compared to trading gold futures or buying shares in gold mining companies. In this article, we will look at gold ETFs, explain what they are, how they work and how you can start trading them!

Whether in physical form or through an ETF, trading or investing in gold doesn’t have to be exclusively for the risk-averse. Precious metals can be an attractive form of investment at any time and for any investor, depending on the length of your investment horizon and the targeted returns you’ve set.

If you think precious metal trading through ETFs isn’t an exciting challenge, then think again.

The same rules apply to selecting ETFs as any sector. You have to do your homework, apply forensic analysis and then commit your decision to the market, just as if you were investing in any other security, such as Forex, shares or equity indices.

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What are Gold ETFs?

An exchange-traded fund is a basket of securities that aims to track an underlying asset, sector or economy. ETFs are traded on stock exchanges, much like a company's shares.

Gold ETFs, therefore, are funds that are designed to track the performance of gold.

Whilst this may be achieved by the funds investing in the physical commodity, they may also invest and trade in gold-related financial instruments; such as futures contracts or shares in companies that are engaged in the gold industry.

The investment approach varies from fund to fund and may include a combination of investments in various different financial instruments.

ETFs which are backed solely by physical gold track gold’s spot price, with their bullion, coins, and bars protected in secure vaults on the investors’ behalf. Each share in the ETF is worth an equal share of one ounce of the fund’s gold.

Gold ETFs Advantages

  • Security: ETFs mean that an investor does not have the security and insurance worries associated with storing precious metals in their home (compared to holding gold bullion).
  • Cost-effectiveness: The overall expense and risk involved when you buy and sell ETFs are less than the cost incurred in purchasing, storing, insuring, and finally selling any physical gold.
  • Straightforward: You don’t have to personally identify the coins or bars which you want to own. Instead, you access a trading platform - like MetaTrader 5 - select the ETF you want to trade or invest in, and monitor your position(s).
  • Liquidity: Many gold ETFs are highly liquid financial products, meaning investors can divest from them quickly, securely and efficiently. There is no need to find a buyer for the physical asset; traders need only access their trading platform in order to sell.

Gold ETFs Disadvantages

  • Trading Fees: ETFs tend to come with higher fees than individual shares, which is something to consider when opting to trade gold ETFs frequently.
  • Operating Expenses: Most gold ETFs are passively managed, however depending on the fund's expense ratio, these expense fees can lessen your overall return.
  • Less Diversification: When investing or trading gold ETFs, naturally you will be prone to less diversity in comparison with other ETFs. 
Popular Gold ETFs
Symbol ETF Name 1 Year Average Return Expense ratio
GLDM SPDR Gold MiniShares Trust 10.84% 0.18%
SGOL Aberdeen Standard Physical Gold Shares ETF 10.87% 0.17%
GLD SPDR Gold Trust 10.86% 0.40%
DGL Invesco DB Gold Fund 9.80% 0.77%
IAUF iShares Gold Strategy ETF 10.31% 0.25% 

 Source: Table created by author with information from The ETF Database - Updated 21 March 2022

Listed above are some of the best performing and most popular gold ETFs based on their performance in 2021. 

Gold reached a record high of $1,954.40 per ounce during 2021, whereas now, in March 2022, it is slightly lower at $1,931.84 per ounce.

How to Choose the Best Gold ETF

When considering trading or investing in gold ETFs, investors and traders should consider both the performance and the expense ratio (as shown in the table above).

The reputation of the firm controlling the ETF might also be a consideration. Some of the firms listed above have a respected legacy and distinguished reputation in the financial markets.

It is also important to look at the assets that the fund has in their portfolio, something which ETFs are very transparent with. As mentioned earlier, some ETFs will track gold solely by holding the physical asset. On the other hand, others will invest in gold via other financial instruments and some will take a mixed approach.

For example, currently, the Invesco DB Gold Fund portfolio is made up only of gold futures. Therefore, it should only be invested in by people interested in gaining exposure to commodity futures. This approach will not appeal to everybody due to the more volatile nature of this financial instrument.

On the other hand, the Aberdeen Standard Physical Gold Shares ETF, as the name suggests, is physically backed by gold bars that are held in vaults located in Zurich and London. Every day, they produce an updated list of how many bars they currently hold.

See below the live TradingView chart, from 2014 up until now, the Monthly chart for the Aberdeen Standard Physical Gold Shares ETF (SGOL) - It's also possible to trade the SGOL CFD at Admirals.

Are Gold ETFs a Good Investment?

Gold is popular among investors because precious metals are used to hedge against currency devaluation, recessions, inflation, and deflation. Gold also acts as a safe-haven asset during times of market turbulence and economic uncertainty.

Many investors like the simplicity of gold; they know it’s a tangible asset. They know it has intrinsic worth, not just for the manufacture of jewellery but also for manufacturing processors and other industrial applications. Gold investments through the wrapper of an ETF make a logical choice for many investors.

Gold ETFs have also proven to be popular amongst pension holders looking to diversify into precious metals and spread the risk of assets in their portfolios. Several UK pension firms specialise in offering exclusive access to gold ETFs, and they will handle the whole process, including storage for their clients.

As previously highlighted, the overall cost and risk relating to ETFs are fewer than involved when you buy, insure and store physical gold.

The expense ratio of physical gold ETFs can be approximately 0.20% of the total investment size. In comparison, private investors who buy physical gold can pay a considerable premium or spread over and above the spot price to acquire the precious metal in similar quantities to the ETF.

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Gold ETFs Performance

The returns of gold EFTs during 2020 were significant due to the rise in the gold price during the year. Gold futures price increased by approximately 18% year on year up to February 2021, just below the increase in the S&P500 of 19% over the same period.

Gold-backed ETFs achieved record inflows during 2020. The inflows helped to increase global holdings to a new record high during 2020.

As we have gone from the global pandemic of covid-19 in 2020, to the geopolitical Russia-Ukraine conflict in 2022, gold and gold ETFs remain in the spotlight.

According to the most recent World Gold Council data, global gold ETFs saw net inflows of $2.1bn just since February 2022. This is naturally due to the mass inflation increase and the current geopolitical conflict.

How to Trade CFDs on Gold ETFs

With Admirals, you can trade Contracts For Difference (CFDs) on over 300 different ETFs, including gold ETFs. CFDs allow traders to attempt to profit from both rising and falling prices, whilst also benefiting from the use of leverage.

In order to place your first trade, follow these steps:

1. Open a Trade.MT5 account with Admirals

2. Download the MetaTrader 5 trading platform

3. Open your trading platform and log in

4. Press Control + U to bring up the ‘Symbols’ window. Here, locate the instrument you wish to trade and select ‘Show Symbol’ and ‘OK’

Depicted: Admirals MetaTrader 5 - Symbols

5. Locate the symbol in the ‘Market Watch’ window, right-click on it and press ‘Chart Window’ in order to open the relevant price chart

6. In order to place a trade, right-click anywhere on the price chart, select ‘Trading’ and ‘New Order’

Gold ETFs: Conclusion

Regardless of the current state of affairs in both the world and the economy, it is important to consider all kinds of financial options when designing your own trading and investing portfolio.

Considering the history of not only gold, but gold ETFs, it is possible that gold ETFs may be suitable for your portfolio. Given its centric quality of hedging against inflation and long-term value, it can make sense to dedicate part of a portfolio to gold assets, in order to offset risk.

If You would like to start trading gold ETF CFDs, share CFDs and more, you can sign up for a live account with Admirals by clicking the banner below:

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Which is the best gold ETF?

Some of the best performing ETFs as of 2021 include:

  • SPDR Gold MiniShares Trust
  • Aberdeen Standard Physical Gold Shares ETF
  • SPDR Gold Trust
  • Invesco DB Gold Fund
  • iShares Gold Strategy ETF

Are gold ETFs a good investment?

Depending on your investing and trading strategy, goals, time horizon and risk tolerance, gold ETFs can be a good investment. One fact is, it is likely much more convenient to buy gold ETFs, opposed to physical gold bullion. Some form of exposure to gold and gold ETFs can be considered a good investment choice, as gold is a common hedge against inflation.

How do I invest in gold ETFs?

In order to invest in gold ETFs, you need to first find a reliable online broker to register with - Ideally, a broker which has an excellent rating on TrustPilot, as this is one of the leading consumer trust websites. Once you have found a broker of choice, you need to register and deposit funds in order to trade or invest in gold ETFs.

 

INFORMATION ABOUT ANALYTICAL MATERIALS:

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admirals investment firms operating under the Admirals and Admirals trademarks (hereinafter “Admirals”). Before making any investment decisions please pay close attention to the following:
1. This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
2. Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
3. With view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for prevention and management of conflicts of interest.
4. The Analysis is prepared by an independent analyst (hereinafter “Author”) based on the Brandie E Blackler, Financial Analyst and Writer personal estimations.
5. Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.
6. Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admirals for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
7. Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.

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