Gold ETFs: what are they and what are the best ones to watch?
We explain what gold ETFs are, the types you can buy, how to get exposure through gold ETFs and outline the best ones to watch.
What is a gold ETF?
A gold exchange traded fund (ETF) or exchange traded commodity (ETC) is a fund that consists of just one asset: gold. ETFs and ETCs trade on a stock exchange just like a normal stock or equity but derives its value from holding ‘underlying assets’ that are centred on the precious metal.
Read more: What are ETFs and how do you trade them?
There are some important things to take into account when considering gold ETFs or ETCs:
- Underlying asset: Although they will all derive their value from gold, they can do this in different ways. Some are backed by physical gold, some have exposure to gold futures, while others are comprised of investments in the companies that mine the precious metal. The underlying asset is what dictates the value of the ETF or ETC and will therefore be the driving factor behind its performance.
- Size: The size of an ETF or ETC is significant because it can impact the efficiency and cost. Larger ETFs tend to have lower costs and are more liquid, which means you can trade them quicker and cheaper if you want to. Liquidity is also key in narrowing the spread on offer, so larger ones tend to offer a smaller difference between what you can buy and sell it for. The size is determined by the assets under management (AUM).
- Leverage: Some are leveraged, which means they use financial derivatives and/or debt to amplify the performance of the underlying asset. A non-leveraged ETF or ETC will try to track the performance of the underlying asset, such as the gold price or a specific index, as closely as possible, but a leveraged one tries to generate 2x, 3x or even greater returns of the underlying asset. Leverage adds to both risk and reward. This means leveraged ETFs or ETCs can offer better returns than non-leveraged ones when the value of the underlying asset moves in the right direction, but also greater losses when it doesn’t.
- Currency and listing: Where the ETF or ETC is traded on is important because it could affect the fees you pay and the regulatory environment that it trades in. The currency is important too. For example, most physical gold is priced in US dollars, so if an ETF or ETC operates in sterling then the USD/GBP rate will likely play a role a significant role in its performance.
How do gold ETFs work?
Gold ETFs work just like any other form of ETF or ETC. They seek to track the price of a benchmark index (in this case, gold) and contain various assets that help them achieve this aim.
The simplest gold ETF, for example, will hold bullion and nothing else. If you bought a share of this fund, you’d be taking ownership of part of that bullion – and the value of your share will therefore closely track the market price of gold. However, gold ETFs can also be more complicated, holding assets like gold futures or stocks in gold-mining companies.
Types of gold ETF
There are lots of different types of ETF, from funds that aim only to track the performance of their underlying index to those that do a lot more – and gold ETFs are no different. Here are a few popular types of gold fund.
Gold miner ETFs
Instead of investing in bullion, a gold miner ETF buys stocks in gold-mining companies. These stocks will tend to move in price as gold’s price moves, but as gold miner ETFs don’t actually hold any gold they will not track its price exactly.
Inverse gold ETFs
An inverse gold ETF, or short gold ETF, aims to move in the opposite direction to the market price of bullion. So if you invest £1000 in inverse gold ETF shares and the gold price drops 5%, your shares should increase in value 5% to £1050 (minus any management fees).
Leveraged gold ETFs
A leveraged gold ETF aims to deliver amplified returns to the price movements of gold – for instance, a double gold ETF will attempt to double any move that spot gold makes. You can also find leveraged inverse gold ETFs, which achieve the same result but to the inverse of gold’s price movement.
Smart beta gold ETFs
Smart beta is a form of investment that aims to outperform its benchmark index by taking more factors into account than a traditional ETF. A smart beta gold ETF might hedge your gold exposure with some equities that are unrelated to the commodity market, for example.
How to find the best gold ETFs
The IG ETF screener is the perfect place to find an ETF to suit you. It allows you to filter through the thousands of ETFs available, including sorting the ones that are eligible for ISA accounts. You can also filter them to match a specific asset class – such as gold - or country.
How to buy or trade gold ETFs
- Decide whether you want to trade or invest in gold ETFs
- Research the top gold ETFs below
- Open an account to get started
- Place your first trade
You can either trade or invest in the best gold ETFs with IG.
When you invest, you own the ETF. You can do this from £3 commission for UK-listed ETFs with an IG share dealing account. Bear in mind that, when you buy and own ETFs, you should look out for a fund with 'UCITS' in the name, which means it is possible to purchase in line with UK regulations.
If you trade, you do so with leverage, meaning you only need a fraction of the capital required to buy the ETF. You can do this with spread betting, tax-free, or CFDs where you’re only required to pay capital gains tax (CGT).
Top gold ETFs to watch
SPDR Gold Shares
SPDR Gold Shares is the biggest gold ETF available to trade with IG, with over $57 billion worth of AUM. The ETF is provided by SPDR State Street Global Advisors and holds gold bars with the aim of tracking the performance of gold bullion.
It has managed to consistently outperform its benchmark for the last four years and delivered a return of 32.3% over the past 12 months.
Invesco Physical Gold ETC
Similarly, the Invesco Physical Gold ETC also aims to track the daily price movements in gold but is listed in London. It tries to track the movements in the London Gold Market Fixing Ltd PM Fix Price in US dollars, underpinned by its holdings of gold bullion.
It too has managed to outperform its benchmark over the last four years and generated a return of 32.5% over the last 12 months.
Sprott Gold Miners
Rather than track the gold price, the Sprott Gold Miners ETF aims to replicate the performance of the Solactive Gold Miners Custom Factors Index, which in turn represents the performance of numerous gold mining companies that are listed on either the Toronto Stock Exchange, NYSE or NASDAQ.
This means it tracks a pool of equities that are diverse in terms of geography and size. It has struggled to keep up with its benchmark since 2017 but it has still delivered a return of 58.7%, making it one of the best performing non-leveraged ETFs over the last year.
iShares MSCI Global Gold Miners ETF
The iShares MSCI Global Gold Miners ETF also tracks the performance of a basket of mining companies but has a broader focus in terms of geography. It aims to track the performance of the MSCI ACWI Select Gold Miners Investable Market Index, which is comprised of mining stocks from around the world.
Newmont Gold and Barrick Gold account for over 43% of the index’s weighting alone, and the next largest weighting is just 5.6%. This means over half the index is weighted toward Canada, 23% to the US, with the rest from South Africa, Australia and Russia. It has delivered a return of 69.7% over the last year.
iShares Gold Producers UCITS ETF USD
For London investors seeking an ETF tracking gold mining equities, the iShares Gold Producers UCITS ETF USD may be suitable. It aims to track the S&P Commodity Producers Gold Index, which follows the largest publicly-listed gold companies from around the world.
Its top ten investments account for two-thirds of its portfolio and is led by recognisable firms such as Newmont, Barrick Gold and Franco-Nevada. The ETF has delivered a return of 59.4% in the last 12 months.
This ETF is available to buy on our share dealing platform as well as on our spread betting and CFD accounts.
VanEck Vectors Junior Gold Miners ETF
The VanEck Vectors Junior Gold Miners ETF tracks gold mining stocks but is different because its benchmark, the MVIS Global Junior Gold Miners Index, is comprised of micro and small-cap gold and silver miners. Junior gold miners are either smaller stocks that produce gold or even those not yet in production and either exploring for gold or developing a project.
These types of stocks are exposed to different risks than large producers, such as project delays or poor exploration results, meaning their share prices are driven by different variables. The ETF has generated a return of 39.4% in the last 12 months.
SG Gold X5 Daily Long GBP
The SG Gold X5 Daily Long GBP has been the best performing gold ETF available to trade with IG over the past 12 months, delivering a return of 166.6% in the last year. However, it has less than $1 million in AUM, making it the smallest one on this list.
Its high leverage, targeting 5x the performance of gold futures, is why it has managed to deliver such a large return as the price of gold has risen. This London-listed ETF follows the Gold Futures X5 Long Leveraged Index. There are other similar leveraged gold ETFs on offer from Societe Generale that allow you to also short the price.
Largest Gold ETFs
Below is a list of the largest gold ETFs available to trade with IG:
|Symbol||Exchange||Currency||Net Assets (USD)|
|SPDR Gold Shares||GLD||NYSE Arca||USD||$57.8 billion|
|iShares Gold Trust||IAU||NYSE Arca||USD||$23.1 billion|
|VanEck Vectors Gold Miners ETF (US)||GDX||NYSE Arca||USD||$13.3 billion|
|Xetra-Gold||4GLD||Deutsche Boerse||EUR||$11.7 billion|
|iShares Physical Gold ETC||IGLN||London Stock Exchange||USD||$11.1 billion|
|Invesco Physical Gold ETC||SGLD||London Stock Exchange||USD||$10.9 billion|
|ZKB Gold ETFs*||*||Swiss Exchange||*||$9.2 billion|
|WisdomTree Physical Gold||PHAU||London Stock Exchange||USD||$8 billion|
|VanEck Vectors Junior Gold Miners ETF||GDXJ||NYSE Arca||USD||$4.4 billion|
|Gold Bullion Securities||GBS||London Stock Exchange||USD||$3.8 billion|
(*There are several ZKB Gold ETFs to trade in the following currencies and symbols: EUR (ZGLDEU), GBP (ZGLDGB), CHF (ZGLDHC), and USD (ZGLDUS), all of which have generated different returns over the last 12 months – use the IG ETF Screener for more details)
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