What is The Best Gold ETF?

As gold investing has surged in recent years, so too has the popularity of the gold ETF space. These funds have allowed for investors of all kinds to add exposure to an asset that was once difficult for retail investors to afford. Now, there are a multitude of ETFs tracking this yellow metal, each with their own nuances and methods for providing the best exposure. But many are left wondering which gold ETF is the best [for more gold ETF news and analysis subscribe to our free newsletter]. 

The answer isn’t quite as clear cut as a simple ticker. In reality, the answer is that it depends on your investment objectives and goals. Different funds will be better for different people. Below we outline several scenarios and which gold funds are the best for investors who fall under those categories.

For Traders, A Clear Choice

This one is not even a competition. The SPDR Gold Trust (GLD) is not only the most liquid gold fund, but it is one of the largest funds in the world. This physically-backed ETF represents about 1/10th an ounce of gold and has been immensely popular over the years. Currently, the fund has about $72 billion in assets and trades nearly 8 million shares a day. The fund also has an extremely active options market, allowing traders to make speculative bets with limited risk.

When it comes to trading, it may be surprising to see that physical gold takes the cake, as most commodities are most liquid in the futures markets. GLD has simply outdone its futures competition and is an easier trade than dealing with futures exchanges. There are other gold products with strong liquidity, but none scratch the surface of this SPDR juggernaut [see also Peter Schiff: Gold Can Only Go Higher].

Buy and Hold: A Heated Debate

Of course, a large amount of individuals are looking to simply buy and hold gold as it has shown strong historical appreciation. GLD is certainly a competitor, but there are other funds in the space that may present better opportunities. The iShares COMEX Trust (IAU) also tracks physical gold, but charges 15 basis points less than GLD. The lower fees mean that IAU will generally outperform its larger competitor  by a slim margin, and the fund still has an impressive $11.5 billion in assets.

Here is where things get a bit more complex. IAU is cheaper on the surface, but it represents 1/100th an ounce of gold, meaning you would have to buy 10x more shares to hold the same amount of gold as you would with a GLD investment. Assuming penny-wide spreads in both funds, that will mean that you are paying far more upfront using IAU. You would need to hold on to the gold for a while to reap the benefits of IAU. But for someone looking to hold for several decades, this fund offers a compelling choice [see also The Dangerous Sign Jim Rogers Sees For Gold].

Usually at this point the conversation ends, but there is one fund that most investors forget about, the E-TRACS UBS Bloomberg CMCI Gold ETN (UBG). This ETN holds a basket of multiple gold futures contracts to help avoid contango in its roll process. But that is not why it deserves a closer look. UBG takes a victory lap around GLD and IAU when it comes down to taxes, as its ETN structure will charge just 15% for long term capital gains; both IAU and GLD are taxed as collectibles at 28% no matter how long you hold them.

Let’s say you invested $10,000 in GLD, IAU, and UBG exactly three years ago. Your positions would be worth as follows:

  • GLD – $15,589
  • IAU – $15,905
  • UBG – $15,372
IAU’s lesser expense ratio allows it to edge out in performance, but when you add in the tax expenses of these three year positions, the tables are turned.
Gold ETPs
Value $15,589 $15,905 $15,372
LTCG Rate 28% 28% 15%
Taxes ($1,565) ($1,653) ($806)
Net Value $14,024 $14,252 $14,566

UBG takes a clear edge when it comes to net return. The fund charges just 30 basis points for investment as well, which may just make it the best fund for buying and holding. The biggest drawback to UBG is that its liquidity comes nowhere that of GLD and IAU.

Alternative Methods Still Linger

Of course, your traditional gold holding may not appeal to some, as they may already own bullion, or are simply interested in spicing things up. When it comes to alternative funds, it isn’t really possible to pick a winner, simply because each fund takes a unique approach making them difficult to compare. Below, we outline some of the most popular alternative gold ETFs.

  • Physical Swiss Gold Shares (SGOL) / Physical Asian Gold Shares (AGOL): These two funds offer exposure to physical bullion, but store their gold in vaults located in Switzerland and Singapore respectively. Many view these funds as a safe outlet should there ever be a gold confiscation, but it should be noted that as U.S.-listed funds, that theory may not hold up.
  • Gold Trendpilot ETN (TBAR): This fund takes a unique approach that switches between investing in gold and 3 month T-bills based on a historical moving average. When the fund is invested in gold it charges 100 basis points, but that drops to 50 when it switches over to T-bills. The fund debuted in early 2011 and has lost more than 7.4% in the trailing year [see also The Most Profitable Months to Trade Gold].
  • 2x Gold Bull/S&P 500 Bear (FSG): This fund tracks the spread between gold and the S&P 500 by going long in 2x leveraged gold futures and shorting the S&P. The methodology has yielded little in the way of assets, and the surging S&P 500 in the past year has brought FSG down by more than 38%. Should markets ever suffer a drop, however, this fund may be in for a nice recovery.

Don’t forget to subscribe to our free daily commodity investing newsletter and follow us on Twitter @CommodityHQ.

Disclosure: Long IAU.

This entry was posted in Actionable Ideas, Asset Allocation, Commodity ETF Analysis, Commodity ETFs, Gold, Precious Metals and tagged , , . Bookmark the permalink.

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

15 Responses to “What is The Best Gold ETF?”

  1. Number 47 says:

    ” Currently, the fund has about $72 billion in assets and trades nearly 8 million times a day.”

    I’m pretty sure you mean 8 million “shares” a day, not 8 million “times”. (That would be number of transactions. (And the 8 million shares number is actually a tad low, it’s average daily volume is closer to 9.25m shares per day).

  2. [...] is where the debate gets a bit tricky. Similar to the gold ETF space, there are two competing, physically-backed funds, that offer very different expense ratios. SLV is [...]

  3. Edward Ulysses Cate says:

    One might want to remember that if you can’t hold it, you don’t own it. You’re simply betting on price changes, not owning a real asset in not-so-good times.

    • doublenickel says:

      Excellent way of putting it, EUC!

      • doublenickel says:

        To elaborate on EUC’s comment: Even with CEF, which I regard as the most transparent and reliable of the bunch, when it comes time to sell, they’ll just give you currency. CURRENCY MAY NOT BE WHAT YOU WANT AT THAT POINT. You may want real assets. Think about it.

  4. anonymouse says:

    GLD needs to prove its gold is all there–something which its prospectus is too loose about—it is too close with the Comex and HSBC which shorts gold big–not in the best interest of the investors—too many rumors of gold not being where it is supposed to be…should have independent audits once a month like CEF.

  5. Mike says:

    Anyone who buys gold and doesn’t have physical custody over it, DOES NOT OWN IT. It does not exist.

  6. therooster says:

    gld needs more transparency

  7. anonymous says:

    yeah like OP’s inferred, I am surprised CEF isn’t mentioned here…. why not diversify with it as it also holds silver, w/ industrial applications, not just a store of value.

  8. scout65 says:

    This one looks pretty good as well, storing the bullion at the HK airport depository:

  9. John Drake says:

    According to Harry Organ, at the Daily Gold and Silver Report, two of the ETF’s that he follows are the GLD and SLV. You must be very careful in trading these vehicles as these funds do not have any beneficial gold or silver behind them. They probably have only paper claims and when the dust settles, on a collapse, there will be countless class action lawsuits trying to recover your lost investment.
    There is now evidence that the GLD and SLV are paper settling on the comex.

    In other words, they are dealing in rehypothecated and fractional reserve share selling – selling paper for many times the value of the physical gold and silver they hold. Like a bank…they have “X” amount of actual money held in reserve, but loan out ten, fifty, one hundred times the money in paper transactions – betting that no one will come in and call in their bet and actually demand physical payment. If they did, the funds would go belly up and there would be huge lawsuits for fraudulent behavior. Stay away from these ETF’s!

    If you want a good ETF to work with, go for PHYS, Sprott Physical Gold Fund that is backed 100% by actual reserves – one to one for each share they have. The Sprott silver fund (PSLV) is similarily covered. These ETF’s have the actual metal backing up each share of the fund.

  10. John Drake says:

    CEF is the other one with 100% physical metal behind each share…

  11. [...] (GLD). While UBG may be nowhere near the size of its physically-backed competitor, it offers two big advantages that investors may want to take a closer look at. For starters, this fund charges 10 basis points [...]

  12. [...] TC: This is probably the number one question we get, and I assure you the gold is real. There are four parties that are involved in GLD: the World Gold Council is our sponsor, the World Gold Trust Services is the issuer of GLD, State Street Global Advisors is the global marketing agent, and Bank of New York Mellon is the trustee. HSBC London is the custodian of the fund, so that is where all the physical gold actually resides. Essentially the way the creation redemption process works is there are over 20 authorized participants who are able to create shares directly with the trust, and delivery is in kind, so there is no cash creation or redemption [see also What is The Best Gold ETF?]. [...]

  13. [...] The redemption process is the same as creation, just in reverse. The APs buy back shares on the secondary market and deliver them to the trust, taking physical possession of gold in exchange for one or more baskets of shares. Only the APs can redeem shares from the trust [see also What is The Best Gold ETF?]. [...]

Leave a Reply

  • Subscribe

    • RSS Icon   Twitter Icon
    • Sign up for free today:
  • Search