A single bar of the standard size (around 12.44kg) held in reserve by central banks is worth several million pounds. You can get smaller bars, but you take our point: investing directly in gold is expensive. Gold ETFs let you get exposure to this desirable asset without having a huge amount of capital. Read on to find out more about investing in gold ETFs.
Just in case you need a refresher, an ETF (or exchange traded fund) is a type of fund that’s listed and traded on stock exchanges in the same way as shares. As with other funds, ETFs are effectively collections of assets. Because of this, by investing in an ETF, you’re automatically getting a certain level of diversification.
The assets held within a single ETF tend to have something in common. For example, some ETFs might focus on tech stocks, while others might be linked to a stock market index such as the FTSE 100.
A gold ETF is a type of ETF that focuses on investing into financial assets and securities related to gold. Gold ETFs have been around for some time. The first one was developed by ETF Securities and launched on the Australian stock exchange in 2003. They have proved popular with investors and are now an increasing influence on the gold price.
If you want to check out the top-performing gold ETFs in the UK, take a look at the options below. Just keep in mind that these aren’t necessarily the best gold ETFs to buy today. Past performance doesn’t dictate future results, so the under-performers may do well over the next few years.
| Icon | Fund | 5-year performance (to June 2024) | 1-year performance (to June 2024) | Link to invest |
|---|---|---|---|---|
 | Invesco Physical Gold A (SGLP) | 76.33% | 14.61% | Invest with SaxoCapital at risk |
 | Amundi Physical Gold ETC (C) (GLDA) | 76.20% | 14.18% | Invest with Hargreaves LansdownCapital at risk |
 | WisdomTree Physical Swiss Gold (SGBX) | 75.48% | 14.56% | Invest with Hargreaves LansdownCapital at risk |
 | iShares Physical Gold ETC (SGLN) | 74.39% | 14.19% | Invest with CMC InvestCapital at risk |
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
Gold ETFs are traded readily during market hours on an exchange, just like shares. Pricing is transparent and it is relatively cheap to invest – you pay a platform (or broker’s) fee and an annual management charge to the ETF provider.
Investing in gold ETFs: step by step
There are two main types of gold ETFs.
With these, shareholder money is invested into physical gold (or bullion), such as coins or those gold bars you’ll be familiar with from bank heist movies, which is stored in a vault. This is what backs the price. If you buy a share of the fund then, theoretically, you own a little piece of that bullion. The largest and most popular ETFs on the market are physically-backed. These ETFs track the price of physical gold closely.
There are also ETFs that track the performance of gold mining companies. While these company shares are impacted by the price of gold, there will be other factors at work too. These can include the success of the company itself, the price to mine gold, labour costs and other considerations.
There are also gold ETFs where the performance is a bit more complex, and tend to be the territory of more experienced investors. These include gold futures ETFs, in which the performance of underlying assets is based on how successfully they predict the future price of gold. In some cases, these may effectively “bet” on gold prices rising. In others, known as inverse or “short” gold ETFs, investors are rewarded if the gold price drops.
Finally, you may come across smart beta gold ETFs. These are a relatively new phenomenon, and are designed to deliver higher returns than a gold shares benchmark. They may tilt exposure towards those companies with higher revenues, or high dividends, for example.
There are two main ways to invest in gold: by buying physical gold such as gold bars or jewellery, or through ETFs or futures.
While buying physical gold has an obvious tangible appeal, and you have direct control over the asset, you do have to worry about things like the legitimacy of its origins and how to store it securely.
Gold ETFs have become an increasingly popular option, allowing investors to get exposure to gold at low cost and without the problems of storage costs or security. A potential downside is that fund management fees can eat into returns, especially if the spot price of gold doesn’t rise over time. And, depending on the specific ETF, performance can be more volatile than the price of the commodity itself.
Ultimately, whether buying physical gold or investing in a gold ETF is a better option is down to your personal circumstances and goals.
There are plenty of traditional stock brokers and share dealing platforms that let you invest in ETFs, including gold ETFs.
When deciding on which account to open, check the range of ETFs available. Some online brokerages give you a wider choice of ETF investments to choose from. And if you have a specific gold ETF in mind, double check that your chosen share dealing account offers it.
Once you’ve narrowed down at list of platforms that offer the gold ETFs you’re interested in, compare fees too. Some providers are cheaper than others.
Gold ETFs are an alternative to buying physical gold for investors who don’t want, or can’t afford, to invest directly in the precious metal. As an asset, gold tends to be a port in a storm. As it is seldom clear when that storm will arrive, many global asset allocators always keep a small holding in gold to act as a defense mechanism. As such, a gold ETF could be a valuable part of your investment portfolio. Bear in mind, though, that no investment – even gold – is risk free. Gold can go through periods of significant volatility, which will inevitably affect the performance of gold ETFs. That said, there can be little doubt gold has been worth holding during the recent pandemic. Lucky holders would have seen a 60%+ gain at a time when other financial assets have struggled.
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