The price of gold has been on the slide lately, falling more than 10% over the last five months as the dollar has rallied on bets of a continued strong U.S. economy. Nonetheless, the outlook is more positive for the rest of the year and next, with December gold futures currently holding above the key technical level of $1,200 per share. A consensus of analysts surveyed by Reuters expect gold prices to hit as high as $1,300 per share by the end of the year.
Investors who are interested in owning the precious metal may want to consider buying shares in a gold exchange-traded fund (ETF). These funds are managed by gold experts, so you stand a better chance of making money than you would on your own. That said, the price of gold will always affect gold ETFs.
We have chosen the top five gold ETFs based on net assets. None of them pay a dividend and none of them have rallied in 2018, despite all posting gains in 2017. Read the descriptions carefully, because each of these ETFs has different types of expenses. All figures are current as of August 31, 2018. (See also: Commodities: Gold.)
This fund buys gold bullion. The only time it sells gold is to pay expenses and honor redemptions. Because of the ownership of bullion, 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 more gold than shares in other funds that do not buy physical gold. However, the downside is taxes. The Internal Revenue Service (IRS) considers gold a collectible, and taxes on long-term gains are high. (For more, see: The Most Affordable Way to Buy Gold: Physical Gold or ETFs?)
This is another fund that buys physical gold. The fund incurs expenses for transportation, warehousing and insuring gold. 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, 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. Owning this fund is considered owning a collectible by the IRS, and it taxes the holdings accordingly. And those taxes are high. 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. (See also: Investing in Gold: Mutual Funds vs. ETFs.)
- Average Volume: 12.3 million
- Net Assets: $10.29 billion
- 2017 Return: 12.91%
- 2018 YTD Return: -6.16%
- Expense Ratio: 0.25%
SGOL stores gold in a vault in Zurich. Owners of the shares own part of that gold. This fund is very liquid, meaning that you can buy and sell shares easily. This allows you to take profits effectively or to add shares when you want to buy the dips. The primary difference between SGOL and other funds that hold physical gold in storage is that SGOL stores its gold exclusively in Swiss vaults. (For more, see: What Drives the Price of Gold?)
- Average Volume: 14,506
- Net Assets: $881.95 million
- 2017 Return: 12.86%
- 2018 YTD Return: -4.09%
- Expense Ratio: 0.39%
The GraniteShares Gold Trust is designed to seek the performance of the price of gold. The ETF is committed to less trust expenses. The ETF is relatively new, as it was created on August 31, 2017. The ETF uses actual gold held and secured in vaults in London, under custody by ICBC Standard Bank. As it uses actual physical gold, it tracks the price of spot gold closely. (For more, see: 8 Reasons to Own Gold.)
- Average Volume: 57,536
- Net Assets: $271.61 million
- 2018 YTD Return: -0.03%
- Expense Ratio: 0.20%
DGL does not buy gold. It tracks the DBIQ Optimum Yield Gold Index Excess Return. The fund does this by buying futures contracts. It should be noted that investors in DGL receive a K-1 form during tax season, meaning they must pay taxes as partners. In addition, 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. (See also: Got a Commodity ETF? Watch Out for Contango!)
- Average Volume: 42,952
- Net Assets: $138.82 million
- 2017 Return: 11.03%
- 2018 YTD Return: -6.62%
- Expense Ratio: 0.76%
The Bottom Line
Gold must always be considered a speculative investment. Investors usually choose ETFs to spread risk among several assets. However, some of these funds invest exclusively in gold, so gains or losses in those cases are tied directly to the price of gold. (For additional reading, check out: Getting Into the Gold Market.)