Gold is well-known for providing an inflation hedge even during times when the stock markets are shaky. When the COVID-19 pandemic shook the stock markets all over the world in early 2020, the stock prices plunged. This was also seen recently when Russia invaded Ukraine. However, gold prices rose because of higher inflation and increasing demand for gold and financial instruments related to gold during market fluctuations.
Investors invest in gold for the same reasons they invest in Canadian REITs: to hedge against the stock market. They are easy to store and have higher liquidity than gold bullions.
So, let’s look at what gold ETFs are:
What Are Gold ETFs?
Storing gold is costly, risky and reselling it can be difficult. Gold ETFs are exchange-traded funds that let investors benefit from the rising price of gold without actually purchasing and storing gold. Some companies that issue gold ETFs directly invest in gold, others invest in gold mining companies and some buy stocks of gold-mining companies.
As the price of gold rises or falls, the investors benefit from the rising price of gold and the company’s stocks that are reflected in the value of gold ETFs.
Investing in gold is low-risk because when stock markets are shaky, gold prices tend to rise. And in the long-run gold prices show a rising trend, hence the investors always profit. Interestingly, during every recession, or an event that shakes financial markets, investors switch to investing in gold that further raises its price.
Here is a list of popular gold ETFs that you can purchase to hedge inflation and diversify your investment portfolio.
SPDR Gold Shares (GLD)
With over $67 billion assets under management, the SPDR Gold Shares is a major player in the investing arena. It is the ultimate gold ETF for investors who don’t want to buy gold bullions but benefit the same way from gold ETFs. The fund was launched in 2004 to give investors exposure to gold prices. The company tracks the prices of gold.
It lets the investors purchase gold virtually through buying the SPDR Gold Shares. The gold ETFs can be purchased through a brokerage account or an IRA account. Due to a high volume of trade on the stock exchange, the bid/ask spread is also very low.
With a 0.4% annual expense ratio, which includes costs of shipping, storing, and safety, the investment is moderately economical.
iShares Gold Trust (IAU)
iShares Gold Trust (IAU) along with all the other iShares is owned by Blackrock. The iShares Gold Trust (IAU) was launched in 2005, and the company today has more than $32 billion in total assets.
The company holds physical gold in locations all over the world and gives the owners of these shares, exposure to the day-to-day changing prices of gold. It has an annual expense ratio of just 0.25%. Compared with SPDR Gold Shares, the annual expense ratio is low and the two funds that are growing at a similar rate annually are almost equally reliable.
SPDR Gold MiniShares Trust (GLDM)
The SPDR MiniShares Trust (GLDM) was launched in 2018 by the same company that issues SPDR Gold Shares (GLD). Currently, the SPDR Gold MiniShares Trust (GLDM) has around $5 billion in assets. The MiniShares also tracks the performance of gold however, it charges only 0.18% annually. So, in comparison to the SPDR Gold Shares (GLD), you pay only $18 instead of $40 for keeping $10,000 worth of gold.
To gain investment from a different segment of investors, the company introduced a product that was cheaper and gave the investors a cheaper exposure to the prices of gold. The only downside of SPDR Gold MiniShares Trust (GLDM) is lower liquidity as compared to its lucrative brother SPDR MiniShares Trust (GLDM).
Aberdeen Standard Physical Gold Shares ETF (SGOL)
Aberdeen Standard Physical Gold Shares ETF (SGOL) was launched in 2009 and currently has over $2.7 billion in assets. The company physically holds gold in a vault in Switzerland so the gold is not just on the paper, it actually exists physically in a vault. Some critics of the GLD say that they prefer SGOL because the company is serious about keeping hard gold assets at all times instead of showing it is there on paper.
The annual expense ratio of SGOL is also very competitive a just 0.17%. Among the list of best gold ETFs, the SGOL is certainly the cheapest and close to keeping gold in a vault yourself.
VanEck Vectors Gold Miners ETF (GDX)
The VanEck Vectors Gold Miners ETF (GDX) invests in stocks of firms involved in around 50 major gold-mining across the globe. The company has roughly $15 billion in assets under management.
Although this ETF is one of the most popular in the gold investing arena, the performance of the security is not tied to the price of gold. It is more dependent on how the gold-mining companies perform. The biggest factor is the price of gold which affects the value of stocks of these mining companies but there are several other factors that affect them.
VanEck Vectors Junior Gold Miners ETF (GDXJ)
Just like the VanEck Vectors Gold Miners ETF (GDX), the VanEck Vectors Junior Gold Miners ETF (GDXJ) tracks the market-cap weighted index of gold mining firms. However, the only difference is that GDXJ focuses on the smaller companies that mine or deal with gold. VanEck Vectors Junior Gold Miners ETF (GDXJ) invests in stocks of over 90 small-cap companies and has over $4 billion in assets under management.
Investors who prefer to invest in small-cap holdings prefer GDXJ because researching and buying securities of these companies can be complicated. These small companies have less diversified portfolios and deal with gold hence buying GCXJ ETFs means more exposure to gold prices.
VanEck Merk Gold Trust (OUNZ)
VanEck Merk Gold Trust (OUNZ) has around $668 million in assets under management. It is the closest to holding gold because the company not only lets you hold the ETFs but also redeem your funds in cash or have the gold delivered to your location. Although the gold is held in vaults in London, investors can redeem it any time in gold coins and bullions delivered to their desired location. The annual expense ratio is 0.25%. And if you want the gold physically delivered to your location (minimum 1 ounce), you have to pay an added fee.
