9 of the best gold ETFs to hedge volatility

The precious metal is attractive when uncertainty abounds in the market.

  • By Jeff Reeves,
  • U.S. News & World Report
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In 2019, the stock market surged about 31% and delivered tremendous gains for many. It now seems the uncertainty of a presidential election coupled with global economic pressures are weighing on investors' minds. And there's the hard reality that the current bull market is more than 10 years old and won’t last forever. While it has been profitable to be "all in" on stocks, long-term success in investing relies on a diversified portfolio across asset classes. That means setting some money aside in gold as a hedge against volatility and market uncertainty. High-quality exchange-traded products play this precious metal in different ways and allow you to invest in gold in simple, cost-effective ways.

SPDR Gold Trust

This SPDR fund (GLD) is the go-to way for investors looking to play precious metals, with nearly $46 billion in assets under management. Since 2005, the fund has allowed investors to purchase gold via their brokerage account or individual retirement account. The fund is benchmarked to gold bullion, giving investors an easy way to get exposure to gold prices without physically owning the precious metal. And the 0.4% expense ratio ($40 annually on every $10,000 invested) is also quite cost-effective when you consider the costs necessary on shipping, insuring and storing gold bars or coins in a safe.

Aberdeen Standard Physical Swiss Gold Shares ETF

Some critics say the SPDR gold ETF isn't really an investment in gold, since it is structured in a trust that tracks the market price of bullion. For investors serious about hard assets, this differentiation between "paper" gold and physical gold is a real concern. That's where SGOL (SGOL) comes in, purchasing and redeeming physical gold in kind with its assets under management and keeping the gold in a vault in Switzerland. First listed in 2009 and managing more than $1.3 billion in assets, this is no small fund. And with a recent reduction that has cut its expenses to just 0.17% annually, the fund is even cheaper than GLD on cost.

VanEck Merk Gold Trust

Gold in a vault is one thing. OUNZ (OUNZ) takes this desire for physical gold to another level by allowing investors to redeem their funds as a deposit back to their investment account or actually shipping the gold to your door. With $200 million or so under management, this fund clearly has found a niche. Delivery comes with an added fee, but the minimum shipment size is just 1 ounce and the base expense ratio of 0.4% annually is on par with several other gold funds. That means you can invest in this fund at a competitive price and simply retain the option for physical delivery if and when you want it.

VanEck Vectors Gold Miners ETF

An investor interested in the big stocks in the gold sector has convenient options. Rather than run out and do a lot of research, you can invest in the biggest names in gold through this ETF (GDX). Composed of 46 major mining stocks including at present Newmont Mining Corp. (NEM) and Barrick Gold Corp. (GOLD), this fund is an easy way to play gold via equity investments. The fund is a bit top-heavy with these top two positions representing nearly 24% of the portfolio, but it's still a much more diversified way to invest in miners than owning two or three individual stocks.

Sprott Junior Gold Miners ETF

One flaw with GDX is many of the mining companies are diversified operations that extract more than gold. Consider that Newmont's operations also include a significant amount of copper and silver. That's simply the nature of a large miner since it has the land and the equipment to operate in this manner. Still, some investors prefer to steer away from the big guys and invest in smaller companies more focused on gold. Researching small-cap miners is difficult, however, so many investors have turned to SGDJ (SGDJ) as a way to get a more direct play on gold miners. The fund currently invests in 45 gold stocks with market capitalizations between $200 million and $2 billion.

X-Links Gold Shares Covered Call ETN

Another way to invest in gold is GLDI (GLDI), which uses the unique method of purchasing gold and then selling options to generate cash. The technique involves covered calls, where GLDI sells rights to its gold at a fixed price in the future. That price is normally about 3% higher than the current price of gold, meaning you'll lock in a net gain and a premium. However, this strategy limits your upside if gold’s price soars. And with an expense ratio of 0.65%, there has to be a decent income stream to offset the cost. The fund’s 12-month yield is currently north of 7%.

Sprott Physical Gold and Silver Trust

For gold investors who are also interested in other hard assets, Sprott's CEF fund (CEF) combines two of the most popular precious metals in one holding. With an allocation of roughly 66% gold bullion and 34% silver bullion, this is clearly a gold fund and not just a grab bag of other metals. Adding to the appeal is the fund is fully invested in physical metal held at the Royal Canadian Mint. CEF investors must take actual delivery of their silver and gold investments. The ETF boasts $2.9 billion in assets, but its annual expense ratio of 0.73% makes it costlier than other funds and there are delivery fees, too.

Direxion Daily Gold Miners Bull 3x ETF

NUGT (NUGT) is a highly liquid and well-followed ETF that is leveraged to give three times the daily movement in gold mining stocks – a high-octane directional bet on the sector. With average volume more than 10 million shares and total assets topping $1.4 billion, it is a popular hunting ground for day traders. Remember, there is more risk here and it is easy to rack up three times the losses if you're on the wrong side of the trade. Furthermore, speculation in NUGT is vastly different from a buy-and-hold approach, so keep your investment goals and time horizon in mind – along with its costly 1.23% expense ratio – before you consider investing in this aggressive fund.

ProShares Ultra Gold ETF

The ProShares UGL fund (UGL) is another leveraged vehicle, but this time it's a fund that's tied to gold bullion itself instead of mining stocks. That makes it a more direct investment in the precious metal, since mining companies can be affected by more than the price of gold. The fund hasn't caught on in the same way since aggressive traders skip over double the exposure in favor of triple the exposure in NUGT, and because the expense ratio is quite high at 0.95%. As result, assets under management are a slightly less than $120 million. Nevertheless, UGL is another interesting tool for investors looking to play gold through traded funds.

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