What is gold ETF?
A gold ETF is a commodity ETF that tracks the price of gold and can be bought and sold on a stock exchange just like stocks. It works as a pooled fund handled by a fund manager. All buying and selling transactions of gold and gold futures are handled by the fund manager. Gold ETFs and gold funds are also called digital gold or paper gold because these securities allow an investor to have exposure to gold without directly owning physical gold.
A commodity ETF invests in one type of natural resource or primary agricultural product, which is also called a commodity. Some examples of commodities are:
What is the purpose of gold ETF?
A gold ETF allows retail investors to invest in gold without having to buy physical gold. While buying physical gold is a way to diversify and protect a portfolio, it may not be convenient for everyone. You need to buy the right type of gold, which needs to be secured so it doesn’t get stolen. It also needs to be stored properly so its value can be maintained.
With a gold ETF, investors don’t need to worry about these things. They get exposure to gold in their portfolio without dealing with the disadvantages.How does a gold ETF Work?
A gold ETF works like any ETF. The fund offers shares of the fund to the market and uses the money from the sale of shares to buy physical gold. Investors can buy shares of the ETF to have exposure to gold in their portfolio without needing to invest a lot of capital. As the price of gold fluctuates in the markets, the value of the ETF moves along with the fluctuations.
How can I buy gold ETFs?
A gold ETF works like any ETF. The fund offers shares of the fund to the market and uses the money from the sale of shares to buy physical gold. Investors can buy shares of the ETF to have exposure to gold in their portfolio without needing to invest a lot of capital. As the price of gold fluctuates in the markets, the value of the ETF moves along with the fluctuations.
What is the minimum amount to invest in gold ETF?
The minimum amount to invest in a gold ETF depends on the transaction limits of your brokerage account. Some brokerages may allow you to buy as little as $1 worth of shares. You don’t need to pay for a whole share because you can buy fractional shares on the brokerages that allow it.
What are the benefits of buying gold ETFs?
Some of the advantages associated with buying gold ETFs are:
- Convenience. It’s simple and easy to buy a gold ETF. You can buy gold ETF shares on your online brokerage app.
- Liquidity. ETF shares can easily be sold during market hours.
- Low costs. Gold ETFs have lower expense ratios compared to gold funds or gold IRA.
- Lower investment amounts. You can buy a gold ETF share for as low as $1 if your brokerage app allows it.
- No storage required. Physical gold needs to be stored in IRS-approved depositories. Gold ETFs invest in gold but the storage of physical gold handled by the fund manager.
What are the risks of buying gold ETFs?
Some of the risks associated with buying gold ETFs are:
- Volatility in the price of gold. Gold is an actively traded commodity with volatile price action.
- Supply and demand of gold fluctuate with market action. Although gold has limited industrial use, it is mainly bought and sold by the central banks of many countries.
- Counterparty risk. One of the 3rd party companies that provide services to the ETF could fail and put its gold reserves at risk.
What is the best gold ETF?
The best gold ETF is the fund that manages its expenses well. Gold does not produce dividends or interest so the only way for a gold ETF to grow is to repeatedly buy low and sell high. Look for gold ETFs that have a low expense ratio and a good track record of performance. Different ETFs are available for each country.
Gold ETF in USA
In the US, there are several companies that offer gold ETFs. Three of the biggest companies that offer gold ETFS are State Street Global Advisors, Blackrock, and abrdn. State Street manages the SPDR family of funds while Blackrock manages the iShares family of funds. abrdn focuses on managing commodity funds. Some of the biggest gold ETFs in the US are:
- SPDR Gold Shares (GLD)
- iShares Gold Trust (IAU)
- abrdn Physical GoldShares ETF
- Graniteshares Gold Shares
- VanEck Merk Gold Trust
Does Vanguard have a gold ETF?
Vanguard does not have a gold ETF. They have a mutual fund that invests a portion in gold, other precious metals, and mining companies.
Gold ETF Canada
The gold ETFs in the US are also available in Canada. In addition, Canada has the Sprott Physical Gold Trust.
Gold ETF ASX
The first gold ETF in the world was launched on the Australia Securities Exchange (ASX) by Graham Tuckwell, founder of Gold Bullion Securities, on March 28, 2003. Today, the most popular gold ETFs in the ASX are:
- SPDR Gold Shares (GLD)
- iShares Gold Trust (IAU)
- abrdn Physical GoldShares ETF
- Graniteshares Gold Shares
- VanEck Merk Gold Trust
Gold ETF UK
Similar to the US, gold ETFs in the UK invest in either gold or gold-mining companies. The UK also has gold ETCs or Exchange-Traded Commodities. They are similar to ETFs in that they deal with a single commodity, but they are structured as debt with gold as collateral. However, in terms of performance, there is little difference between the two. Some of the top gold ETFs/ETCs available in the UK are:
- The Royal Mint Physical Gold ETC
- SPDR Gold ETF
- Vaneck Vectors Gold Miners ETF
- iShares Gold Trust ETF
- Sprott Physical Gold Trust ETF
Gold ETF India
In India, investors need to open a dematerialized account (also known as demat account) to buy gold ETF shares. The demat account stores the securities in digital format and it’s connected to the bank account and brokerage account to facilitate buying and selling of securities. For gold ETFs in India, 1 ETF unit is equivalent to 1 gram of gold and it is backed by physical gold. Some of the popular gold ETFs in India are:
- SBI Gold ETF (SETFGOLD / SBIG)
- HDFC Gold ETF (HDFCMFGETF)
- IDBI Gold ETF (IDBIGOLD)
- Axis Gold ETF (AXISGOLD)
- Kotak Gold ETF (KOTAKGOLD)
Do you get physical gold with gold ETFs?
Usually, you don’t get physical gold with gold ETFs. Even if the underlying assets of an ETF are gold bullion, you don’t get to own physical gold. If you want to exchange your gold ETF for physical gold, you will need to sell your gold ETF shares first. Then withdraw the proceeds and either buy physical gold yourself or do a gold IRA rollover. However, if you invest in the Sprott Physical Gold Trust, this ETF allows you to redeem physical gold if you have the equivalent of at least 400 ounces of gold.
Can a gold ETF replace physical gold in your portfolio?
For small portfolios, a gold ETF can replace physical gold in a portfolio. If it’s too expensive or too inconvenient to own physical gold, a gold ETF is a viable alternative. However, as the total portfolio size increases, an investor may want to review owning gold ETFs vs physical gold.
Does gold ETF pay dividends? Do gold ETFs pay interest?
Gold ETFs don’t pay dividends or interest. They don’t generate passive income. This is an important consideration when planning the allocation of your retirement funds.
What is the difference between gold ETF and gold Fund?
Gold ETF
Gold Funds
What is the difference between gold ETF vs physical gold IRA?
Gold ETF
Gold IRA
In general, when choosing between a gold IRA vs a gold ETF, the small investor that wants to have exposure to gold in the short term is better with a gold ETF. However, for long-term investment of gold in retirement savings, a gold IRA is the better option.