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Gold exchange-traded funds (ETFs) and gold mining ETFs invest in either gold itself or gold mining companies. Both offer a way to diversify, invest in gold, and benefit from higher prices. The key difference is in what assets these ETFs hold.
Gold ETFs invest directly in physical gold bullion or use derivatives contracts to gain indirect exposure. Gold mining ETFs invest in the stocks of gold mining companies.
Key Takeaways
- Gold ETFs and gold mining ETFs provide exposure to the gold industry and can help diversify an investment portfolio.
- Gold ETFs hold physical gold, either directly or by using derivatives contracts.
- Gold mining ETFs hold portfolios of companies’ stocks that extract and refine the metal.
- Investors should consider expense ratios, performance, holdings, and liquidity when researching gold ETFs and gold mining ETFs.
- SPDR Gold Shares (GLD), the VanEck Vectors Gold Miners ETF (GDX), and the iShares MSCI Global Gold Miners ETF (RING) are popular options in this space.
How Gold ETFs and Gold Mining ETFs Work
As with other ETFs, gold ETFs and gold mining ETFs trade like shares of stock and are listed on the major stock exchanges. This means investors can buy and sell these ETFs throughout the day with low or no commissions.
For gold ETFs, each share represents a fixed amount of gold stored securely in a vault controlled by the ETF manager. They give investors exposure to the price of gold without owning the physical metal directly.
Meanwhile, gold mining ETF shares represent ownership in a portfolio of gold mining firms, and their performance is tied to the profits of extracting and refining gold and broader stock market trends.
Gold ETFs
Physical gold ETFs like SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) own gold bullion stored in vaults in London, New York, Canada, and other safe jurisdictions. Each ETF share represents fractional ownership of the underlying gold. Some issuers offer a “mini” version of the ETF with a lower share price for smaller investors. For example, one share of GLD represents 1/10 of one ounce of gold, while the “mini” version of GLD, GLDM, holds 1/50, making it a more affordable option for those looking to invest in gold without committing too much money.
The metal is audited and insured for physical gold ETFs to confirm its bona fides. These ETFs regularly publish lists of their gold holdings, and for investors, they have fewer fees and other costs than storing the gold themselves.
Synthetic gold ETFs instead use derivatives like futures and options contracts to track the price of gold rather than owning physical gold. This can lower expenses but adds counterparty and other potential risks. Some gold ETFs may employ derivative contracts for leverage (e.g., two- or three-times returns) or inverse returns (i.e., the ETF’s price falls when the gold’s value rises).
Many gold ETFs track the London Bullion Market Association (LBMA) gold price, which replaced the London Gold Fix in 2015 and is the global benchmark based on auctions between large gold traders and refiners. Other benchmarks include the Bloomberg Gold Subindex and futures prices on the COMEX in the United States.
Investors should be aware that storage and insurance costs are factored into the ETF’s expense ratio. Also, owning shares in these ETFs doesn’t mean you own a specific piece of gold; instead, you own a portion of the entire gold stockpile held by the ETF.
Gold Mining ETFs
Gold mining ETFs hold a basket of publicly traded gold mining stocks and related companies. Their portfolios typically include miners focusing on gold exploration, production, and processing. By owning shares of gold mining firms, the ETFs provide equity exposure to the industry rather than the price of gold itself.
While these companies’ profits are often tied to the price of spot gold, owning shares in them exposes investors to the operational risks, costs, labor issues, and geological uncertainty involved in gold mining operations.
Many gold mining ETFs hold a broad portfolio of gold producers, but some focus on so-called junior gold mining firms. These are smaller companies exploring or in early production, working to identify and prove gold deposits.
The rationale for carving out specific ETFs for them is that junior firms have more upside potential and more risk. As gold prices rise, junior firms may see greater growth as they produce new reserves. However, junior mining companies are less diversified in their operations, often with weaker balance sheets and higher failure rates.
| Gold ETFs vs. Gold Mining ETFs | ||
|---|---|---|
| Aspect | Gold ETFs | Gold Mining ETFs |
| Investment Objective | Track the price of physical gold | Invest in a basket of gold mining companies |
| Benefits | Inflation hedge, diversification, liquidity, ease of investment, price transparency | Leveraged exposure to gold, dividend potential, and company growth beyond the price of gold |
| Risks | Price volatility, no income generation, storage and insurance costs (if holding physical gold) | Operational risks, higher volatility, and market risks influenced by company-specific factors |
| Income Generation | None | Potential for dividends |
| Correlation with Gold Prices | Direct correlation | Indirect and often leveraged correlation |
| Suitability | For investors looking for direct exposure to gold prices and those seeking a hedge against inflation or currency devaluation | For investors seeking potential growth and willing to accept higher volatility and company-specific risks |
Benefits and Risks of Investing in Gold ETFs and Gold Mining ETFs
The primary benefit of gold ETFs is that they expose investors to gold more easily than traditional methods. Owning gold can help diversify a portfolio and provide a hedge against inflation. ETF shares are highly liquid and can be bought and sold daily on the open market, making it easy to adjust a portfolio’s gold exposure when needed.
ETFs are also transparent—the holdings are published daily, and their costs are clearly stated in prospectuses. Physical gold ETFs are also subject to audit, a crucial peace-of-mind measure given the problems of fraud that have plagued the industry back to the earliest gold coins.
While gold mining stocks and their ETFs may pay dividends, most gold ETFs do not do so or provide interest income. However, exceptions like the FT Vest Gold Strategy Target income ETF (IGLD) financially engineer an income flow.
Precious metals and the companies that mine them can be highly volatile, especially the younger firms. As such, gold ETFs and gold mining ETFs may not be well-suited for conservative investors seeking wealth preservation.
Top Gold ETFs and Gold Mining ETFs
| Gold ETFs Compared | |||||
|---|---|---|---|---|---|
| Symbol | ETF Name | Mandate | Backed by Physical Gold? | Total Assets ($Millions) | Expense Ratio |
| GLD | SPDR Gold Shares | The largest physically backed gold (ETF) in the world | Yes | $57,122 | 0.40% |
| IAU | iShares Gold Trust | Tracks the performance of the price of gold | Yes | $26,065 | 0.25% |
| GLDM | SPDR Gold MiniShares Trust | Has a lower share price than GLD, offering a more convenient way for investors to access this market | Yes | $6,305 | 0.10% |
| SGOL | abrdn Physical Gold Shares ETF | Reflects the performance of the price of gold bullion | Yes | $2,758 | 0.17% |
| IAUM | iShares Gold Trust Micro ETF | Lower share price than IAU | Yes | $972.6 | 0.09% |
| BAR | GraniteShares Gold Trust | Reflects the performance of gold bullion | Yes | $957.3 | 0.17% |
| OUNZ | 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. | Yes | $778.3 | 0.25% |
| AAAU | Goldman Sachs Physical Gold ETF | Reflects the performance of gold bullion | Yes | $631.3 | 0.18% |
| UGL | ProShares Ultra Gold | Seeks daily investment results that correspond to twice the daily performance of the Bloomberg Gold Subindex | No | $184.7 | 0.95% |
| DBP | Invesco DB Precious Metals Fund | Holds gold (80%) and silver (20%) futures contracts | No | $145.6 | 0.77% |
| IGLD | FT Vest Gold Strategy Target Income ETF | Offers participation in the price returns of the GLD ETF while providing a consistent income | No | $86.3 | 0.85% |
| DGP | DB Gold Double Long Exchange-Traded Notes | Offers 2× daily long leverage to the broad-based Deutsche Bank Liquid Commodity Index-Optimum Yield Gold | No | $80.1 | 0.75% |
| FGDL | Franklin Responsibly Sourced Gold ETF | Reflects the performance of the price of gold bullion, but all holdings are said to be responsibly sourced | Yes | $57.7 | 0.15% |
| IAUF | iShares Gold Strategy ETF | Tracks the investment results of an index that provides exposure, on a total return basis, to the price performance of gold | No | $43.1 | 0.34% |
| BGLD | FT Vest Gold Strategy Quarterly Buffer ETF | Seeks to match the price returns of the GLD ETF up to a predetermined upside cap of 10.50% while providing a buffer against underlying ETF losses of -5% to -15% | No | $29.0 | 0.91% |
| GLL | ProShares UltraShort Gold | Seeks daily investment results that correspond to twice the daily performance of the Bloomberg Gold Subindex | No | $13.4 | 0.95% |
| DZZ | DB Gold Double Short Exchange-Traded Notes | Offers 2× daily short leverage to the broad-based Deutsche Bank Liquid Commodity Index-Optimum Yield Gold | No | $4.3 | 0.75% |
| DGZ | DB Gold Short Exchange-Traded Notes | Offers 1× daily short exposure to the broad-based Deutsche Bank Liquid Commodity Index-Optimum Yield Gold | No | $3.2 | 0.75% |
| GLDX | USCF Gold Strategy Plus Income Fund ETF | Seeks the performance of the price of gold while generating dividend income by selling gold call options and gaining collateral interest income | No | $3.2 | 0.47% |
| Gold Mining ETFs Compared | ||||
|---|---|---|---|---|
| Symbol | ETF Name | Mandate | Assets Managed ($Millions) | Expense Ratio |
| GDX | VanEck Gold Miners ETF | Tracks the overall performance of companies involved in the gold mining industry | $12,180 | 0.51% |
| GDXJ | VanEck Junior Gold Miners ETF | Tracks the overall performance of small-capitalization companies involved primarily in mining gold and silver | $4,166 | 0.52% |
| NUGT | Direxion Daily Gold Miners Index Bull 2× Shares | Seeks daily investment results of more than twice the performance of the NYSE Arca Gold Miners Index | $490.2 | 1.19% |
| RING | iShares MSCI Global Gold Miners ETF | Tracks the investment results of an index composed of global equities of companies primarily engaged in gold mining | $404.8 | 0.39% |
| JNUG | Direxion Daily Junior Gold Miners Index Bull 2× Shares | Seeks daily investment results of more than twice the performance of the MVIS Global Junior Gold Miners Index | $269.9 | 1.15% |
| SGDM | Sprott Gold Miners ETF | Tracks the performance of larger-sized gold companies whose stocks are listed on Canadian and major U.S. exchanges | $220.2 | 0.50% |
| GDXU | MicroSectors Gold Miners 3× Leveraged ETN | Provides three times the daily leveraged exposure to a market-cap weighted index comprising GDX and GDXJ | $159.4 | 0.95% |
| JDST | Direxion Daily Junior Gold Miners Index Bear 2× Shares | Seeks daily investment results of more than twice the performance of the MVIS Global Junior Gold Miners Index | $114.5 | 1.02% |
| SGDJ | Sprott Junior Gold Miners ETF | Tracks the performance of smaller-sized gold companies whose stocks are listed on regulated exchanges | $102.3 | 0.50% |
| GOAU | US Global GO GOLD and Precious Metal Miners ETF | Provides access to companies engaged in the production of precious metals through mining, royalties, and production | $88.5 | 0.60% |
| DUST | Direxion Daily Gold Miners Index Bear 2× Shares | Aims for daily investment results of more than twice the performance of the NYSE Arca Gold Miners Index | $70.3 | 1.07% |
| GDXD | MicroSectors Gold Miners -3× Inverse Leveraged ETNs | Provides inverse three times the daily leveraged exposure to a market-cap weighted index comprising GDX and GDXJ | $45.6 | 0.95% |
| GOEX | Global X Gold Explorers ETF | Provides access to a broad range of companies involved in the exploration of gold deposits | $34.3 | 0.65% |
| AUMI | Themes Gold Miners ETF | Tracks the largest 30 companies by market capitalization that derive their revenues from gold mining | $1.3 | 0.35% |
How Can I Buy Shares in a Gold ETF or Gold Mining ETF?
Gold ETFs and gold mining ETFs are readily available through brokerage firms. Simply research and identify the particular ETF that interests you and then load that ticker symbol into your broker’s order entry platform. Today, many brokers offer commission-free trading in ETFs.
How Do Gold ETFs and Gold Mining ETFs Compare with Other Investments?
ETFs provide more liquidity, lower costs, and storage ease than owning physical gold. However, physical gold allows true ownership while ETF holders only experience indirect exposure through the fund. ETFs are also simpler with full asset backing than when trading futures, which also have inherent leverage/contango considerations.
Is It Better to Invest Directly in Gold or in Gold ETFs?
Investing in gold vs. gold ETFs depends on individual investment goals, risk tolerance, and preferences. Both options have advantages and drawbacks.
Physical gold can be held and stored, offering a sense of security to many investors. Owning physical gold also means there are none of the risks associated with the management or performance of a fund.
However, extensive holdings of physical gold require secure storage and insurance, which can be costly and cumbersome. Selling physical gold can also be less convenient and take more time than selling shares of an ETF.
Can I Hold a Gold ETF in a Retirement Account?
Yes, gold ETFs can be held in a retirement account like a traditional or Roth IRA. This is beneficial, since holding physical gold in an IRA requires a special gold IRA, which has its own rules and fees.
The Bottom Line
Both gold ETFs and gold mining ETFs provide ordinary investors with an accessible and cost-effective way to diversify into gold. Gold ETFs that hold physical gold track the price of gold, while gold mining ETFs hold stocks engaged in the gold mining industry.
Choosing which is best for your portfolio depends on your needs, risk tolerance, and investment goals. Regardless of which you choose, be sure to pay attention to expense ratios, liquidity measures, benchmarks, and the portfolio of ETF holdings.
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