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Jo Groves
Forbes Staff
Published: May 25, 2023, 12:44pm
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Kevin Pratt
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Gold exchange-traded funds (ETFs) allow investors to track the price of gold without having to own and store the underlying asset.
The precious metal continues to appeal to investors seeking a safe haven, with economic and geopolitical uncertainty pushing gold prices near an all-time high. Demand for gold soared last year after the invasion of Ukraine, and the recent collapse of Silicon Valley Bank and Credit Suisse triggered fears of a global banking crisis.
While gold can be held in its physical form, there are simpler ways of investing in it. One option is to invest in gold-focused ETFs, which provide exposure to the commodity without the cost of buying and storing it.
To help investors navigate through the options, we asked Alena Kosava, head of investment research at AJ Bell, for her opinion on which gold ETFs are worthy of consideration and why. Her choices are set out below (in alphabetic order) and range from gold-focused ETFs to broader-based commodity funds.
Meanwhile, our FAQs section takes a closer look at investing in gold exchange-traded funds.
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- Featured Partner
- Our Pick Of The Best Gold ETFs
- Invesco Physical Gold ETC (SGLP)
- iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT)
- iShares Physical Gold ETC (SGLN)
- WisdomTree Core Physical Gold ETP (WGLD)
- WisdomTree Physical Gold ETC (PHAU)
- Methodology
- What is a gold ETF?
- What are the advantages of investing in a gold ETF?
- What are the drawbacks of investing in a gold ETF?
- Frequently Asked Questions (FAQs)
Guides To Investing
- Best Investment Trading Apps
- Best Trading Platforms
- Best Trading Platform For Beginners
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- Best SIPP Providers
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- How to Trade GBP/USD
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Our Pick Of The Best Gold ETFs
Returns data is sourced from Trustnet and is based on total cumulative returns for the five-year period ending 16 May 2023.
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Invesco Physical Gold ETC (SGLP)
Fund size
£12.6 billion
Total expense ratio
0.12%
5-year total return
67%
On interactive investor's Website
Fund size
£12.6 billion
Total expense ratio
0.12%
5-year total return
67%
Why We Picked It
The Invesco Physical Gold exchange-traded commodity (ETC) has a long track record in this sector, having been established in 2009.
The ETC is backed by physical gold held in vaults in London. It has UK reporting status but its base currency is US dollars. The ETC is unhedged, meaning that UK investors are exposed to exchange rate fluctuations between the US dollar and pounds sterling.
It has one of the lower annual management fees of 0.12% and has delivered a return of 9% over the last year.
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WisdomTree Core Physical Gold ETP (WGLD)
Fund size
£478 million
Total expense ratio
0.12%
5-year total return
n/a (1-year return of 9%)
Fund size
£478 million
Total expense ratio
0.12%
5-year total return
n/a (1-year return of 9%)
Why We Picked It
The WisdomTree Core Physical Gold ETP was created in 2020, and is backed by physical gold held in vaults in London. Its base currency is US dollars and it is unhedged.
The ETP complies with the most recent guidance from the London Bullion Market Association (LBMA) on gold sustainability, which applies higher ESG (environmental, social and governance) standards to miners and refiners.
This ETP is physically backed and holds 100% of its gold in post-2022 bullion, which may appeal to investors looking for an ESG investment, along with one of the lower management fees.
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WisdomTree Physical Gold ETC (PHAU)
Fund size
£4.0 billion
Total expense ratio
0.39%
5-year total return
66%
Fund size
£4.0 billion
Total expense ratio
0.39%
5-year total return
66%
Why We Picked It
The WisdomTree Physical Gold ETC has one of the longest track records in this sector, having been running since 2007.
It’s backed by physical gold held in vaults in London. The ETC has UK reporting status but its base currency is US dollars. Investors also have the option of hedged pounds sterling units in the fund.
It has one of the higher annual management fees of 0.39% and has delivered a return of 9% over the last year.
Methodology
AJ Bell’s head of investment research, Alena Kosava, highlights the following criteria in her choice of gold ETFs: “These were selected on the basis of the quality of provider, physical replication method, track record in this area of the market and also costs.
“ESG sustainable gold ETCs is a newer area of the market and therefore more difficult to assess, with the WisdomTree product selected on the basis of WisdomTree running the longest established physical gold ETC.”
What is a gold ETF?
In their purest form, gold ETFs invest in one asset: gold. They trade on a stock market, as with shares in companies, and their underlying value is based on the price of gold.
These ETFs either hold gold in its physical form or hold derivatives that track gold prices.
Investors also have the option of broader-based funds, for example, ETFs that track a basket of precious metals or commodities, or an index of gold mining companies.
What are the advantages of investing in a gold ETF?
There are several reasons why it can make sense to invest in a gold ETF, particularly in times of economic and geopolitical volatility:
- wealth preservation: inflation reduces the ‘real’ value of a currency over time, particularly when inflation is high, as is currently the case. Investors may revert to holding gold as a real physical asset that holds its value
- safe haven: the value of a currency is driven by factors such as interest rates, inflation and the level of public debt. In contrast, the value of gold is a function of supply and demand and gold is therefore seen as a safe haven in times of uncertainty
- diversification: along with cash, shares, bonds and property, gold is another class of asset for investors looking to diversify their investment portfolio. This can help to protect against the risk of one asset underperforming
- ease: it can be expensive to store gold securely and a gold ETF provides exposure to gold prices without having to buy and hold the physical gold
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On eToro’s Website
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What are the drawbacks of investing in a gold ETF?
There are also some disadvantages of holding a gold ETF:
- volatility: as with other assets, the price of gold is subject to fluctuations and investors might have to wait some time before being able to sell their gold ETFs for a profit
- lack of income: gold does not produce an income or ‘yield’ for investors, unlike savings accounts, bonds and dividend-paying shares
- geopolitical factors: although the price of gold may rise in terms of geopolitical and economic instability, equally it can fall when stability is restored
- relative underperformance: although gold may outperform other assets at certain periods, it has not offered the long-term returns of other asset classes such as equities
- cost: the ETF will charge an annual management fee (ranging from 0.1% to 0.5% for the selected ETFs)
Frequently Asked Questions (FAQs)
What affects the price of gold?
The supply of gold is relatively limited, meaning that the price is highly sensitive to changes in demand.
The chart below shows how the price of gold (per ounce in US dollars) has changed over the last 20 years. It has increased from $350 in 2003 to its current price of over $2,000, an increase of more than five times.
Sources: FastMarkets, ICE Benchmark Administration, Thomson Reuters, World Gold Council
How can investors buy ETFs?
As with shares in companies, ETFs are bought and sold using ‘live’ prices. One of the most popular ways to buy ETFs is via an online trading platform.
It’s worth comparing the fees charged by the platform, as these can vary significantly. We’ve compared the fees, along with other information, in our pick of the best trading platforms.
Alternatively, investors can buy ETFs in a tax-efficient wrapper such as an Individual Savings Account (ISA) or Self-Invested Personal Pension (SIPP).
What fees are charged for ETFs?
There are various types of fees charged by trading platforms:
1. Trading fee
This is a flat fee charged by the platform each time an investor buys or sells an ETF. Some platforms charge no share trading fee, while others may charge between £5 to £12 per trade.
2. Platform fee
This is an annual fee charged for holding the ETFs on the platform. Some platforms charge no fee for this, others charge a flat fee and some charge a percentage, typically 0.25% to 0.45% of the value of the portfolio, although this is often capped for ETFs.
3. Foreign exchange fee
If investors buy or sell ETFs denominated in a currency other than pounds sterling, nearly all of the platforms charge a foreign exchange fee. This is also referred to as a foreign currency conversion fee and typically varies from 0.5% to 1.5%. Some platforms also charge a higher trading fee for overseas ETFs.
A small number of platforms allow investors to hold foreign currency in their account, which enables them to convert it once and use this money for buying and selling ETFs in the local currency.
What’s the difference between an ETF and ETC?
Exchange-traded commodities (ETCs) are similar to ETFs, but invest in a single commodity. Under EU rules, ETFs are not allowed to invest in only one commodity and, as a result, funds backed by physical gold trade as ETCs.
What is foreign exchange exposure?
Some of the selected funds have US dollars as their base currency. This means that UK investors are exposed to foreign currency movements between the dollar and the pound.
Looking at an example, an investor buys $500 of shares in a gold ETF. At the time of the trade, the exchange rate is £1:$1.15, meaning that the trade costs £435 for a UK investor.
If the pound strengthens, and the exchange rate moves to £1:$1.25, the ETF is worth £400. In other words, the investment is worth less in pounds sterling due to the foreign exchange movement. This also works in reverse, with UK investors gaining if the pound weakens.
Some ETFs offer a hedged pounds sterling option for UK investors. They hold forward contracts in currencies which lock in future exchange rates and reduce the uncertainty of exchange rate movements.
What are other options for investing in gold?
Alternatively, investors might want to consider investing in shares in individual companies or other types of funds. To help with this, we asked our panel of experts for their pick of the best gold stocks and shares, as well as looking at other options for investing in gold.
We’ve also looked at different ways of buying gold, for investors wanting to hold gold directly in its physical form.
Guides To Investing
- Best Investment Trading Apps
- Best Trading Platforms
- Best Trading Platform For Beginners
- Best Trading Platform for Day Trading
- Best SIPP Providers
- Stock Trading Courses
- How to Trade GBP/USD
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