- Gold can be an excellent component of a diversified portfolio due to its low correlation to other asset classes
- Gold has maintained its value against the backdrop of inflation, though it does move in synch with decreases or increases in the rate of inflation
- Physical gold ETFs have made incorporating gold into an investment portfolio much easier, cheaper and potentially more profitable
- There are 87 commodities focused currently available in the U.S.
- Many of these ETFs are linked to the price of gold, but there are only 7 ETFs directly tied to the spot price of physical gold
- This article will focus on those 7 Physical Gold ETFs
The reason that I and many other investors invest in gold is that it has near zero correlation to other major asset classes.
Gold ETF correlation to other Assets:
Gold has proven itself over thousands of years that it is a good store of value. Many have claimed that gold is also a good hedge against inflation, which has some truth in it, but gold is not directly correlated to increases or decreases in inflation. Markets are mostly forward looking, so in many instances the price of gold can either be ahead or behind current inflation rates. But, in the long run gold does tend to maintain its value.
Gold vs U.S. Large Cap Blend Equities (aka S&P 500): January 1972 – December 2021
The oldest available Physical Gold ETF available is the SPDR® Gold Shares (GLD). Here’s how it has held up since inception:
GLD vs SPY: December 2004 – December 2021
GLD vs SPY: November 18, 2004 – January 21, 2022
While owning physical gold has some benefits over ETFs, there are a few reasons why Physical Gold ETFs are more efficient for use in an investment portfolio. First off, the price spread between the buy or sell of an ETF is typically within ±0.70% of the price movement of the spot price of physical gold. When buying or selling physical gold from a dealer that spread will be about 4.2% on the low end, but usually higher than that. Second off, once you have your physical gold in your possession, you must consider how you will store it, the potential cost of storage, and the potential cost of additional insurance, etc. The median annual expense ratio for a Physical Gold ETF is 0.18%. Last off, Physical Gold ETFs are easy to manage in an investment portfolio. With a Physical Gold ETF, you can create a buy or sell market order and the order will immediately execute within pennies of the current ETF price or you can select a limit order and it will execute as soon as the ETF price meets your stipulations (during normal stock market hours). With physical gold in your possession, this process could take days, if not weeks to execute.
Currently there are about 87 commodities focused exchange traded products in the U.S. I weeded through all of those ETPs and came up with 7 Physical Gold ETFs. I eliminated ETPs that are exchange traded notes (ETNs). I eliminated ETPs that hold other metals. I eliminated leveraged ETPs. I eliminated ETPs that are futures or derivative based. I also eliminated the ETPs that are less than 1 year old because they don’t have enough data to do much with. Below, I have ranked all 7 of the Physical Gold ETFs that were not eliminated:
DVETF Rankings for the 7 Physical Gold ETFs (Note, expense ratios matter):
Head-to-head comparisons of the Physical Gold ETFs:
IAU vs SGOL vs GLDM vs BAR vs AAAU vs OUNZ vs GLD: August 15, 2018 – January 21, 2022
IAU vs SGOL vs GLDM vs BAR: July 2018 – December 2021
Stated objectives of the 7 Physical Gold ETFs:
IAU – The iShares Gold Trust (the ‘Trust’) seeks to reflect generally the performance of the price of gold. Exposure to the day-to-day movement of the price of gold bullion. Convenient, cost-effective access to physical gold. Use to diversify your portfolio and help protect against inflation.
SGOL – Aberdeen Standard Physical Gold Shares ETF (“the Shares”) are issued by Aberdeen Standard Gold ETF Trust (“the Trust”). The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the expenses of the Trust’s operations. The Shares are designed for investors who want a cost-effective and convenient way to invest in physical gold.
GLDM – The SPDR® Gold MiniShares (NYSE Arca: GLDM) offers investors one of the lowest available expense ratios for a U.S. listed physically gold-backed ETF. GLDM may be beneficial to investors who intend to have long-term exposure to gold. Similar to its SPDR® gold suite counterparts, SPDR Gold MiniShares represents fractional, undivided beneficial ownership interests in the Trust which holds only physical gold bullion and, from time to time, cash. The launch of SPDR® Gold MiniShares offers a convenient way for investors to access the gold market and is intended to provide them with a lower total cost of ownership over longer periods of time.
BAR – The GraniteShares Gold Trust is designed to seek the performance of the price of gold, less trust expenses. Physically Backed: The Trust holds only LBMA good delivery bars stored in a vault domiciled in London, UK. Transparent and Secured: The list of gold bars held by the Trust is published daily. The vault is audited twice a year. Lending of metal is not permitted, and the Trust cannot hold derivatives. Cost Effective: BAR is among the lowest cost gold ETFs on the market. Easy to Access: BAR is listed on NYSE Arca and can be traded through a normal brokerage account.
AAAU – Goldman Sachs Physical Gold ETF. Seeks to reflect the performance of the price of gold less the expenses of the Trust’s operations. Offers investors an opportunity to gain exposure to gold without the complexities of gold delivery. Gold is a counter-cyclical asset that can provide portfolio diversification in times of market volatility. Goldman Sachs Physical Gold ETF is among the most competitively priced commodity ETFs on the market. The cost of the ETF is 18 basis points, compared to the industry average for commodity ETFs of 63 basis points.
OUNZ – VanEck Merk®Gold Trust seeks to provide investors with a convenient and cost-efficient way to buy and hold gold through an exchange traded product with the option to take physical delivery of gold. The Trust’s primary objective is to provide investors with an opportunity to invest in gold through the shares and be able to take delivery of physical gold bullion (physical gold) in exchange for their shares. The Trust’s secondary objective is for the shares to reflect the performance of the price of gold less the expenses of the Trust’s operations. Deliverability: VanEck Merk Gold Trust holds gold bullion in the form of allocated London Bars. It differentiates itself by providing investors with the option to take physical delivery of gold bullion in exchange for their shares. Convertibility: For the purpose of facilitating delivery, Merk has developed a proprietary process for the conversion of London Bars into gold coins and bars in denominations investors may desire. Tax Efficiency: Taking delivery of gold is not a taxable event as investors merely take possession of what they already own: the gold.
GLD – The investment objective of SPDR® Gold Trust (the “Trust”) is for SPDR® Gold Shares (“GLD”) to reflect the performance of the price of gold bullion, less the Trust’s expenses. The first US traded gold ETF and the first US-listed ETF backed by a physical asset. For many investors, the costs associated with buying GLD shares in the secondary market and the payment of the Trust’s ongoing expenses may be lower than the costs associated with buying, storing and insuring physical gold in a traditional allocated gold bullion account.
Thank you for taking time to read this article. If you found it useful, please share it with a friend.
Respectfully yours, Micah McDonald, aka the Deep Value ETF Accumulator
An excellent primer for those interested in starting an investment in gold:
A Complete Guide to Investing in Gold, by David Stein
Disclosure: We currently own shares of GLDM and we intend to buy more shares in the future. I am not a professional investment advisor. Please perform your own due diligence or seek the advice of a Registered Investment Advisor before investing in any security mentioned in this article. This website contains affiliate links to M1 Finance and Google AdSense.