An exchange-traded fund (ETF) that tracks the price of gold is generally comprised of physical gold or gold futures contracts. Gold has a history of holding its value and serves as a hedge against weakness of currencies, a hedge against inflation and deflation, and a hedge against geopolitical uncertainty.
Gold ETFs enable traders, investors and speculators to gain exposure to physical gold ownership or price movements in the commodity. Trading and investing in gold ETFs is similar to passive holding, allowing investors to mimic gold's price movement without having to manage the physical asset, paying for holding fees or entering into a derivative contract. Generally, the performance of ETFs reflects the performance of its total investments or holdings before any fees and expenses.
SPDR Gold Shares ETF
Since the inception of the SPDR Gold Shares ETF (Nasdaq: GLD) on Nov. 18, 2004, the fund has been tracking the performance of the price of gold bullion before the Trust's expenses and fees. The fund aims to track the spot price of gold before fees, expenses and liabilities, by holding physical gold bullion bars in vaults in London.
GLD is legally structured as a grantor trust, and the trustees, marketing agents, custodians and sponsors of the SPDR Gold Shares are BNY Mellon Asset Servicing, State Street Global Markets LLC, HSBC Bank PLC, and World Gold Trust Services LLC, respectively. As of June 29, 2015, GLD has net assets of $26.77 billion and a gross expense ratio of 0.4%, while the category average is 0.55%.
As of June 29, 2015, based on five-year trailing data, the annualized return of GLD is -1.58%. Similarly, its alpha of -0.18 indicates that it underperformed the MSCI ACWI NR USD Index by 0.18%. The fund's Sharpe ratio of 0 indicates that the fund was unable to provide an adequate return on a risk-adjusted basis.
The fund is suitable for traders and speculators looking to capture intraday moves of the spot price of gold, as well as investors who have a bias on the direction of the spot price of gold. Similarly, since gold can be used to hedge against a multitude of risks, such as currency risk, geopolitical risk and economic risk, GLD is suitable for investors who want to hedge their portfolio.
PowerShares DB Gold ETF
The PowerShares DB Gold ETF (NYSE Arca: DGL) is an ETF that seeks to track the performance of the DBIQ Optimum Yield Gold Index Excess Return plus the interest earned from the fund's holdings of U.S. Treasury securities before fees and expenses. To track this index, the fund holds gold futures contracts to provide exposure to gold. The fund strategically selects the futures contracts to take into account any costs of rolling the futures contracts into further expiration dates.
Due to its dynamic and strategic selection of futures contracts, the fund has an expense ratio of 0.75%, while the category average is 0.55%. As of June 29, 2015, based on five-year trailing data, the annualized return of DGL is -3.15%. Similarly, its alpha of -1.35 indicates that it underperformed the MSCI ACWI NR USD Index by 1.35%. The Sharpe ratio of -0.06 indicates that the fund was unable to provide an adequate return on a risk-adjusted basis, and investors were better off investing in an asset that returned the risk-free rate.
The fund is suitable for investors, traders and speculators looking to mimic the price movements of gold futures contracts. Due to the speculative nature of this fund, those who invest, trade or speculate should have a high risk tolerance.
iShares Gold Trust ETF
Similar to GLD, the iShares Gold Trust ETF (Nasdaq: IAU) tracks gold spot prices, before fees, expenses and liabilities, by holding gold bars in vaults around the world. As of July 29, 2015, the trust holds 163.55 tonnes. The trustee of IAU is the Bank of New York Mellon, and the custodian is JPMorgan Chase Bank. The fund has a gross expense ratio of 0.25%, while the category average is 0.55%. This ETF is suitable for investors, traders and speculators who want exposure to price movements of gold bullion.