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7 gold ETFs to watch

Physical gold is considered by many investors to be a ‘safe haven investment’ which they can rely on in times of economic instability, so naturally, gold ETFs share similar qualities. Discover some of the best-performing exchange-traded funds (in terms of 5-year returns) to watch in 2022 that provide exposure to the precious metal and can be used as a potential hedge against a market downturn or volatility.

Please remember that past performance is not a reliable indicator of future results.

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Is it a good time to buy gold ETFs?

Gold can be seen as a good investment all-year round, whether the financial markets are in a bullish or bearish phase. This is because the metal tends to perform well even throughout global recessions, rarely losing its value. As the price of the metal increases, this is usually reflected in the price of gold stocks and exchange-traded funds (although not always, which we will explore later on). These can also help to protect against inflation when the price may start to increase.

For further detail, read our article on how to invest in gold and silver​.

What are the two types?

There are two different types of exchange-traded funds in the gold market:

  • Physical gold ETFs seek to replicate the performance and price of bullion. These can be calculated in different ways depending on the fund but differ from exchange-traded commodities (ETC).

  • Stock or company ETFs seek to replicate the performance of an index containing gold-related company stocks, whether these relate to mining, extraction, or production of the metal.

We explore some of the best-performing gold ETFs in the market right now below.

Physical gold ETFs

The following data is taken from ETF Database and is up to date as of January 2022. Please remember that past performance is not a reliable indicator of future results.

1. Aberdeen Standard Physical Gold Shares ETF [SGOL]

This product issued by Aberdeen Standard is one of the best-performing gold ETFs in the UK. It aims to reflect the performance of bullion bars, which are stored in secure vaults in both London and Zurich, Switzerland. Although it’s a UK-based exchange-traded fund, the base currency is in US dollars. According to Bloomberg, it has a ten-year correlation of 0.0110 for the benchmark vs the S&P 500 index, meaning that when the blue-chip index decreases in value, SGOL moves in the opposite direction and could be valuable for diversification and protection against stock market volatility.

5-year return: 54.80%

Expense ratio (percentage of fund’s assets used to cover fees and expenses): 0.17%

2. iShares Gold Trust [IAU]

The iShares Gold Trust exchange-traded fund seeks to reflect the price of gold in general. The fund provides exposure to the daily movements of bullion prices, reflecting the price of the metal owned by the trust before any expenses or liabilities are taken. It has one of the lowest expense ratios for gold funds, which may be attractive to investors that are conscious of extra costs.

5-year return: 54.60%

Expense ratio: 0.25%

3. VanEck Merk Gold Trust [OUNZ]

VanEck’s exchange-traded fund is a unique and highly liquid investment that provides investors with the option to take physical delivery of gold bullion in exchange for their shares. The allocated London Bars can be converted into coins or bullion however the investor desires with the purpose of making delivery easier, although this is not a taxable event. This ETF may be useful for those that want to own the physical asset but want a more convenient and cost-effective way of buying and holding.

5-year return: 53.82%

Expense ratio: 0.42%

4. SPDR Gold Shares [GLD]

SPDR Gold Shares is one of the largest and most popular physically backed fund in the world, and it can be traded on a number of stock exchanges. It seeks to reflect the performance of gold bullion’s price. The fund exists to initially track the price of a tenth of an ounce of gold, but this can be modified if the share price differs from the market price, in order to keep the fund roughly in line with the gold price.

5-year return: 53.57%

Expense ratio: 0.40%

Gold mining and exploration ETFs

The following data is taken from ETF Database and is up to date as of January 2022. Please remember that past performance is not a reliable indicator of future results.

1. iShares MSCI Global Gold Miners ETF [RING]

This fund from iShares provides investors with exposure to 40 global stocks that earn their revenues primarily from mining activities. This includes companies from Australia, the US, and Canada, such as Newcrest Mining, Kirkland Lake Gold, and Kinross Gold. It has a considerably high daily volume of trades compared to other ETFs in the same category, making it one of the most popular mining ETFs among investors.

5-year return: 62.60%

Expense ratio: 0.39%

2. VanEck Vectors Gold Miners ETF [GDX]

VanEck Vectors Gold Miners is an exchange-traded fund that invests in equities involved in the production of gold and silver and more specifically, the mining of the metal. These stocks typically have high market capitalisations and trading liquidity, including Newmont, Barrick Gold, and Franco-Nevada. This ETF has one of the highest ESG scores within the industry.

5-year return: 55.91%

Expense ratio: 0.53%

3. Sprott Gold Miners ETF [SGDM]

The Sprott Gold Miners fund aims to replicate the performance of its underlying index, the Solactive Gold Miners Custom Factors Index. This index tracks over 30 large-cap mining companies that are listed on major US and Canadian exchanges. The index includes constituents with the highest revenue growth, free cash flow yield and the lowest long-term debt to equity ratio, which is re-balanced on a quarterly basis to reflect updated statistics and performance.

5-year return: 46.49%

Expense ratio: 0.52%

What are the benefits of investing in gold funds?

  • Exposure to the physical asset without taking ownership.

  • Little or no transportation costs.

  • Lower commission and insurance fees compared to holding physical gold.

  • Helps to diversify your trading portfolio.

  • All of the funds listed above have high trading volume and liquidity, although there are many smaller and less liquid funds available to trade also.

Are there any risks?

  • The price of gold can see large swings in volatile periods, which is often reflected in stocks and exchange-traded funds.

  • Physical ETFs come with a relatively high capital gains tax rate.

  • Expense ratios and other fees can reduce return rates.

How to invest in gold ETFs

  1. Decide whether you want to invest in physical bullion or companies that are part of the exploration, mining, and refining process.
  2. Check the expense ratios. The higher the ratio, the more costs you will pay for the operation and management of the fund.
  3. Assess the market and choose how many shares of the exchange-traded fund you want to purchase, based on financial stability and your risk aversion.

FAQs

What is a gold exchange-traded commodity?

A gold exchange-traded commodity (ETC) allows you to invest in the single commodity listed on a stock exchange, and its performance is based either on the spot price or future price of the precious metal. This differs from a gold ETF, which must be made up of more than one constituent, according to UCITS guidelines, for diversification purposes.

How are gold ETFs taxed?

Physical gold and commodity ETFs in general are usually taxed at a long-term capital gains rate of 28% when held in a taxable account. This differs from stock ETFs, which when held for more than a year, face a capital gains tax rate of 0%, 15%, or 20%, depending on the investor’s taxable income.

Are there any gold ETFs in the UK?

Yes - one of the best-performing gold ETFs in the UK is the Aberdeen Standard Physical Gold Shares ETF [SGOL], which has a 5-year return rate of 54.80%. The metal is priced off the London Bullion Market Association’s benchmark for physical gold and is held in vaults in London and Zurich.

Is it better to buy physical gold or ETFs?

Many investors prefer to buy gold exchange-traded funds as they don’t have to deal with transporting and storing the metal, as this can prove difficult. However, gold is seen as a safe haven investment within the financial markets, so this process will appear worthwhile for some investors as the potential for returns is high.


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