As gold investing has surged in recent years, so too has the popularity of the gold ETF space. These funds have allowed for investors of all kinds to add exposure to an asset that was once difficult for retail investors to afford. Now, there are a multitude of ETFs tracking this yellow metal, each with their own nuances and methods for providing the best exposure. But many are left wondering which gold ETF is the best [for more gold ETF news and analysis subscribe to our free newsletter].
The answer isn’t quite as clear cut as a simple ticker. In reality, the answer is that it depends on your investment objectives and goals. Different funds will be better for different people. Below we outline several scenarios and which gold funds are the best for investors who fall under those categories.
For Traders, A Clear Choice
This one is not even a competition. The SPDR Gold Trust (GLD) is not only the most liquid gold fund, but it is one of the largest funds in the world. This physically-backed ETF represents about 1/10th an ounce of gold and has been immensely popular over the years. Currently, the fund has about $72 billion in assets and trades nearly 8 million times a day. The fund also has an extremely active options market, allowing traders to make speculative bets with limited risk.
When it comes to trading, it may be surprising to see that physical gold takes the cake, as most commodities are most liquid in the futures markets. GLD has simply outdone its futures competition and is an easier trade than dealing with futures exchanges. There are other gold products with strong liquidity, but none scratch the surface of this SPDR juggernaut [see also Peter Schiff: Gold Can Only Go Higher].
Buy and Hold: A Heated Debate
Of course, a large amount of individuals are looking to simply buy and hold gold as it has shown strong historical appreciation. GLD is certainly a competitor, but there are other funds in the space that may present better opportunities. The iShares COMEX Trust (IAU) also tracks physical gold, but charges 15 basis points less than GLD. The lower fees mean that IAU will generally outperform its larger competitor by a slim margin, and the fund still has an impressive $11.5 billion in assets.
Here is where things get a bit more complex. IAU is cheaper on the surface, but it represents 1/100th an ounce of gold, meaning you would have to buy 10x more shares to hold the same amount of gold as you would with a GLD investment. Assuming penny-wide spreads in both funds, that will mean that you are paying far more upfront using IAU. You would need to hold on to the gold for a while to reap the benefits of IAU. But for someone looking to hold for several decades, this fund offers a compelling choice [see also The Dangerous Sign Jim Rogers Sees For Gold].
Usually at this point the conversation ends, but there is one fund that most investors forget about, the E-TRACS UBS Bloomberg CMCI Gold ETN (UBG). This ETN holds a basket of multiple gold futures contracts to help avoid contango in its roll process. But that is not why it deserves a closer look. UBG takes a victory lap around GLD and IAU when it comes down to taxes, as its ETN structure will charge just 15% for long term capital gains; both IAU and GLD are taxed as collectibles at 28% no matter how long you hold them.
Let’s say you invested $10,000 in GLD, IAU, and UBG exactly three years ago. Your positions would be worth as follows:
- GLD – $15,589
- IAU – $15,905
- UBG – $15,372
UBG takes a clear edge when it comes to net return. The fund charges just 30 basis points for investment as well, which may just make it the best fund for buying and holding. The biggest drawback to UBG is that its liquidity comes nowhere that of GLD and IAU.
Alternative Methods Still Linger
Of course, your traditional gold holding may not appeal to some, as they may already own bullion, or are simply interested in spicing things up. When it comes to alternative funds, it isn’t really possible to pick a winner, simply because each fund takes a unique approach making them difficult to compare. Below, we outline some of the most popular alternative gold ETFs.
- Physical Swiss Gold Shares (SGOL) / Physical Asian Gold Shares (AGOL): These two funds offer exposure to physical bullion, but store their gold in vaults located in Switzerland and Singapore respectively. Many view these funds as a safe outlet should there ever be a gold confiscation, but it should be noted that as U.S.-listed funds, that theory may not hold up.
- Gold Trendpilot ETN (TBAR): This fund takes a unique approach that switches between investing in gold and 3 month T-bills based on a historical moving average. When the fund is invested in gold it charges 100 basis points, but that drops to 50 when it switches over to T-bills. The fund debuted in early 2011 and has lost more than 7.4% in the trailing year [see also The Most Profitable Months to Trade Gold].
- 2x Gold Bull/SP 500 Bear (FSG): This fund tracks the spread between gold and the SP 500 by going long in 2x leveraged gold futures and shorting the SP. The methodology has yielded little in the way of assets, and the surging SP 500 in the past year has brought FSG down by more than 38%. Should markets ever suffer a drop, however, this fund may be in for a nice recovery.
Disclosure: Long IAU.