7 gold ETFs with low costs

These seven gold ETFs all share low fees - but give investors different ways to play the metal, from direct exposure to stock-related angles.

  • By Kyle Woodley,
  • Kiplinger
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Investors in gold and gold exchange-traded funds (ETFs) have plenty to crow about this year.

The yellow metal is up by nearly 25% in 2020, and both a dipping dollar and central-bank stimulus across the world has analysts expecting even more gains out of gold investing.

Gold investors typically tout several virtues of the yellow metal: It hedges against inflation, they say, it's an uncorrelated asset that doesn't move with the stock market and it can grow in value when national or even global uncertainty is high. Those features help build the bull case, which you can leverage via gold ETFs.

Some people look to gold investing to diversify their portfolios, and aggressive investors can try to squeeze profits out of short-term swing trades. We recommend that if you do try your hand at this commodity, you first learn the ins and outs of investing in gold, make it a small portion (5%) of your portfolio and use ETFs, for several reasons, including liquidity, low expenses and ease of use.

Here's an introduction to seven low-cost gold ETFs that offer varying types of exposure to the precious commodity. This list includes the most ubiquitous gold ETFs on the market – funds you typically can read about in just about any daily commodity wrap-up – as well as a few that aren't as well-covered by the financial media but might be better investments than their high-asset brethren.

Data is as of July 26.

SPDR Gold Shares

Assets under management: $75.1 billion

Expenses: 0.40%, or $40 annually for every $10,000 invested

The SPDR Gold Shares (GLD) is the first U.S.-traded gold ETF, and as is the case with many "first funds," it also has more assets than any of its competitors – by almost three times its closest rival.

SPDR Gold Shares is the prototypical gold fund: It represents fractional interest in physical gold bullion stored in vaults. That allows investors to participate in the upside of gold prices without having to deal with the hassles of physically storing, protecting and insuring bullion or coins. In the case of the GLD, the ETF's price represents 1/10th an ounce of gold.

The GLD's sheer size and popularity breeds several benefits for traders: The fund is extremely liquid and has tight bid-ask spreads, and its options market is more robust than any other traditional gold fund.

Its one glaring downside? A relatively high expense ratio – something competitors have tried to exploit, and something that SPDR finally addressed. (More on that in a minute.)

iShares Gold Trust

Assets under management: $29.5 billion

Expenses: 0.25%

The iShares Gold Trust (IAU) has long been the premier low-cost alternative to the GLD. That, as well as its relative longevity (inception was in 2005), have helped it amass nearly $30 million billion in assets under management.

IAU is similar to GLD in that its shares are meant to represent a fraction of an ounce of gold, though in IAU's case, it's 1/100th rather than the GLD's 1/10th. Otherwise, it acts very similarly to SPDR's gold ETF.

This iShares gold ETF isn't as liquid as the SPDR Gold Shares, and its bid-ask spreads aren't as tight, so it's not ideal for short-term traders. However, its significantly lower cost makes it a better buy for long-term buy-and-holders. Over the course of 30 years, assuming a $10,000 initial investment and, say, 5% annual growth, you would pay roughly $1,700 less in fees with IAU over the life of the investment.

VanEck Vectors Gold Miners ETF

Assets under management: $18.1 billion

Expenses: 0.52%

Gold ETFs that represent physical holdings are the most direct way to invest in gold via the stock market. But you can also play gold via mining stocks.

The very short exploration: Gold miners extract gold ore from a mine and then process it into gold. And they try to do that at a cost that’s less than the price they sell the gold for, generating a profit. The ideal situation: Holding gold miners that have low costs of production while gold prices are both increasing and higher than those companies' costs to produce the gold.

One popular way to play this industry is the VanEck Vectors Gold Miners ETF (GDX) – a collection of roughly 50 companies in the gold mining industry. This fund is weighted by market capitalization, which means the bigger the stock, the greater the percentage of assets GDX invests in it. The ETF is heavily weighted, then, in bigger miners such as Newmont (NEM, 13.7% of assets), Barrick Gold (GOLD, 13.2) and Franco-Nevada (FNV, 7.3%). In fact, nearly two-thirds of the fund's assets are concentrated in just the top 10 holdings – a condition that can be referred to as "top-heavy."

One note: Gold miners tend to be more reactive to the price of gold than gold ETFs that actually hold the metal – when GLD improves, GDX tends to improve more, and vice versa. That's great in boom times (GDX is up 49% this year, for instance), and good for shorter-term trades. But it also means less stability over the long term.

VanEck Vectors Junior Gold Miners ETF

Assets under management: $6.4 billion

Expenses: 0.53%

Another way to leverage gold that's even riskier than traditional miners but also has more "pop" potential: junior miners.

When you think of mining companies, you tend to think of the companies in GDX – they operate mines, process the ore and sell the gold. But there's a lot that goes on first, and that's where junior gold miners come in. These firms employ engineers and geologists to help discover new gold deposits, determine how big their resources are and even help start mines up.

These are highly risky companies given the nature of their work. A seemingly promising project could turn south overnight, decimating the value of the stock. These small companies typically aren't flush with cash, either, so there's not much of a backstop should disaster strike. The flip side? Success can send these stocks flying quickly.

Holding one or two of these stocks can be extremely risky. If you want exposure to this type of gold play, the VanEck Vectors Junior Gold Miners ETF (GDXJ) spreads the risk across nearly 80 such companies – names such as Kinross Gold (KGC), Gold Fields (GFI) and Australia's Northern Star Resources.

However, even though the fund has more holdings and is less top-heavy than the GDX – top-10 holdings account for 45% of the fund's assets – the riskier nature of GDXJ's constituents results in slightly more volatile performance, for better or worse.

GraniteShares Gold Trust

Assets under management: $1.6 billion

Expenses: 0.1749%

The GraniteShares Gold Trust (BAR) might not be familiar to many investors. But this gold-backed ETF – built in the same vein as GLD and IAU – has done something impressive by amassing $1.6 billion in assets in just less than three years of trading; inception was at the end of August 2017.

In an interview with Kiplinger, GraniteShares CEO Will Rhind told Kiplinger, "We're establishing a low-cost commodity ETF offering because no one has done that. That's an important differentiator; Vanguard doesn't do commodities."

BAR is built similarly to GLD, with shares representing 1/10th the price of gold. But at just 0.1749% in expenses, it undercuts both the GLD and lower-priced IAU. In fact, its low fees forced the hand of one of Wall Street's biggest ETF providers, which we'll discuss next.

SPDR Gold MiniShares

Assets under management: $3.0 billion

Expenses: 0.18%

SPDR has long had a stranglehold on the gold trading market, but the iShares Gold Trust slowly sapped away assets from the buy-and-hold crowd. It's likely that GraniteShares' offering in summer 2017 was the final straw, because the fund provider finally hit back.

The SPDR Gold MiniShares Trust (GLDM), launched in summer 2018, is one of the lowest-cost gold ETFs backed by physical metal at just 0.18% in expenses. It's similar to IAU in that each share represents 1/100th of an ounce of gold rather than 1/10th, but it charges 7 basis points less than the iShares fund.

This ETF now makes SPDR a total threat in the gold space, offering both a dirt-cheap product (GLDM) for buy-and-hold retail investors, as well as a high-volume trading product (GLD) for institutional and other accounts.

U.S. Global GO GOLD and Precious Metal Miners ETF

Assets under management: $119.0 million

Expenses: 0.60%

One last option that puts you in touch with miners of not just gold, but other precious metals, is the U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU).

This is another tight portfolio, this time of fewer than 30 companies, that are engaged in the production of gold or other precious metals, whether that's actively (say, mining) or passively (owning royalties or production streams).

That's not a bad deal considering that gold isn't the only precious metal on the rise in 2020. Silver, for instance, is actually up a whopping 34% year-to-date to above $24 per ounce, with the sliding U.S. dollar again partly to thank.

Top holdings include the likes of Wheaton Precious Metals (WPM, 10.7%), which deals in streaming agreements tethered to gold, silver and other precious metals, and the aforementioned Franco-Nevada (9.3%), a similar royalty-and-streaming company.

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© 2020 The Kiplinger Washington Editors, Inc.
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