Gold has been quite a shiny performer in the last few years, especially in the second half of 2019. At $1,454 per ounce as of Nov. 27, 2019, the price of the yellow metal is up 19.5% over the last year—14.4% in the last six months alone. The World Bank predicts prices to climb as high as $1,600 per ounce in 2020.
Individual investors who are interested in owning the precious metal may want to consider buying shares in a gold exchange-traded fund (ETF). These managed funds offer a convenient and liquid way to own bullion, in a more diversified—and therefore less risky—way than if you bought and stored the stuff yourself. That said, the price of gold will always dictate the performance of these gold ETFs.
We have chosen the top five gold ETFs based on net assets. None of them pay a dividend but, after a depressing 2018, their returns have rallied in 2019. Read their prospectuses and descriptions carefully, because each of these ETFs has different types of expenses. All figures are current as of Nov. 27, 2019.
- The outlook for gold is good in 2020.
- Gold ETFs are a convenient, liquid way for individual investors to buy and hold gold.
- Five leading gold ETFs are SPDR Gold Shares, iShares Gold Trust, Aberdeen Physical Swiss Gold, Granite Shares Gold Trust, and Invesco DB Gold.
The biggest gold-backed ETF, this fund buys and holds onto gold bullion. The only time it sells gold is to pay expenses and honor redemptions. As a result, this fund is extremely sensitive to the price of gold and will follow gold price trends closely.
One upside to owning gold bars is that no one can loan or borrow them. Another upside is that each share of this fund represents a purer gold play than shares in other funds that do not buy physical gold. However, the downside is taxes. The Internal Revenue Service (IRS) considers physical gold a collectible, and even though ETF shares are bought and sold much like stocks, you are taxed on the sale of them as if you did own physical gold—at a rate of 28% for long-term capital gains.
The second-largest gold-oriented ETF, IAU is another fund that buys physical gold. The fund incurs expenses for transportation, warehousing, and insuring the bullion. IAU keeps its gold in vaults scattered around the planet. Interestingly, the fund does not try to profit from the gold by selling it when the price goes up. Instead, its fund managers consider IAU a way for investors to buy and hold gold bullion. This makes the fund very stable.
Because of the low expenses for the fund, investors have a cheap way to buy and manage gold in a way they could not by themselves. In the beginning, one share of the fund equaled 1/100th of an ounce of gold. This number actually goes down as time passes because expenses have to be figured into the cost of a share.
- Average Volume: 120.01 million
- Net Assets: $17.34 billion
- 2018 Return: -1.39%
- 2019 YTD Return: 13.54%
- Expense Ratio: 0.25%
The primary difference between this fund and other ETFs that is that SGOL stores its gold exclusively in Swiss vaults (primarily Zurich). Although its trading volume is not as high as others, this fund is still very liquid. This allows you to take profits effectively or to add shares when you want to buy the dips.
- Average Volume: 811,247
- Net Assets: $1.19 million
- 2018 Return: -1.51%
- 2019 YTD Return: 13.62%
- Expense Ratio: 0.17%
Created on August 31, 2017, the GraniteShares Gold Trust is relatively new. It is committed to keeping expenses low, all the better to have its shares tracks the spot price of gold closely. The ETF owns actual physical gold held and secured in vaults in London, under custody by ICBC Standard Bank.
- Average Volume: 57,536
- Net Assets: $595.18 million
- 2018 Return: -1.34%
- 2019 YTD Return: 13.61%
- Expense Ratio: 0.17%
Unlike these other ETFs, DGL does not invest in physical gold; instead, it tracks the DBIQ Optimum Yield Gold Index Excess Return, which reflects changes in the metal's market value, by buying futures contracts.
Owners of ETFs that invest in commodity futures receive an IRS K-1 tax form, meaning they must pay taxes as partners.
Investing in futures has its advantages—it lets a fund own large amounts of gold with relatively little capital commitment. But it also means the fund's managers must constantly fight contango, which is a situation where the futures contract is higher than the future spot price of gold. Investors lose money because the futures contract must be adjusted downward to match the spot price.
- Average Volume: 40,780
- Net Assets: $175.18 million
- 2018 Return: -3.64%
- 2019 YTD Return: 12.54%
- Expense Ratio: 0.75%