- June 16, 2023
- 676
- ETF
Top rated investment strategies with gold ETFs
What Is a Gold ETF and what are the best ETFs for gold investment? An exchange-traded fund (commonly known as ETF) is a type of investment fund that are traded on stock exchanges. ETFs contain securities such as bonds, stocks and commodities. When you invest your money in an ETF, you invest in all (the basket) of the securities within the fund. These funds usually track a specific sector or commodity, in our case gold. So what is a gold ETF? It’s a specialized type of exchange-traded fund that holds gold assets. These funds can contain gold bullion, a mixture of bullion and futures, or even more diverse gold investments, such as gold mining stocks. The value of a gold ETF usually matches the value of gold; when gold’s price increases, the ETF’s value should increase in turn.
How to Invest in a Gold ETF? Online brokers allow you to invest in gold ETFs from the comfort of your home. If you’re new to the stock exchange, you may want to use a beginner-friendly platform like Fidelity, Robinhood, or Vanguard. Advantages and Risks Associated with Gold ETFs: Gold ETFs face the same risks as investing in physical gold. Gold is relatively volatile, as the price changes each day. However, with a gold ETF, you don’t need to worry about storing physical gold and protecting it against theft, water damage, or natural disasters. In general, gold has historically been a good hedge against inflation and is a good way to diversify your portfolio with a relatively standard risk profile. Buying shares of a gold ETF is a convenient way to gain these benefits.
Physical Gold Shares ETF (SGOL)
– Performance Over One Year: -5.3%
– Expense Ratio: 0.17%
– Annual Dividend Yield: N/A
– Three-Month Average Daily Volume: 2,203,470
– Assets Under Management: $2.3 billion
– Inception Date: Sept. 9, 2009
– Issuer: Abrdn Plc
SGOL is also structured as a grantor trust. It seeks to track the performance of the price of gold bullion minus fund expenses. It has lower expenses than many other gold ETFs. The sole holding of the fund is gold bullion, which is stored in vaults in London and Zurich.
What Is a Gold ETF’s Tax Implications? The IRS taxes gold ETFs the same as other stocks and bonds. You’ll need to report the income gained on an ETF on your 1099 tax form. The tax rate for gains on ETFs depends on your income threshold but may be as high as 37% in 2023. However, the structure of ETFs seeks to minimize the tax bill for investors, and you’ll likely pay less in taxes than you would with a similar mutual fund. If you’re not sure how to report your gold ETF on your taxes, consider talking to a CFA or tax advisor.
iShares Gold Trust Micro ETF (IAUM)
– Performance Over One Year: -5.1%
– Expense Ratio: 0.09%7
– Annual Dividend Yield: N/A
– Three-Month Average Daily Volume: 148,026
– Assets Under Management: $1.1 billion
– Inception Date: June 15, 2021
– Issuer: BlackRock Financial Management
Unlike many other gold exchange-traded products, IAUM is structured as a true ETF. It trades on the NYSE Arca and also uses the LBMA Gold Price as a benchmark. IAUM can be utilized as a way to diversify a portfolio of securities and to protect against inflation. The sole holding of IAUM is gold bullion.
How Do Gold ETFs Work? You can buy shares of an ETF on a stock exchange the same way you would purchase any other type of stock. One share of a gold ETF is equivalent to a specific portion of the gold or gold-related assets within the fund. The valuation will usually fluctuate with the price of gold, and you can sell your share quickly and easily on the exchange. Gold ETFs are relatively straightforward investment vehicles, but the different types of gold ETFs make this form of investing a little more complicated. Be sure you understand the main types of gold exchange-traded funds below.
Physically Backed Gold ETFs: A physically backed gold ETF is a fund that contains actual gold bullion, coins, and bars. The securities in the fund track the current value of gold within the market, and every share has a value proportionate to one troy ounce of gold. Buying shares in a physically backed gold ETF is an effective way to take advantage of the benefits of gold investing without needing to own physical gold.
GraniteShares Gold Trust (BAR)
– Performance Over One Year: -5.2%
– Expense Ratio: 0.17%
– Annual Dividend Yield: N/A
– Three-Month Average Daily Volume: 1,076,315
– Assets Under Management: $866.9 million
– Inception Date: Aug. 31, 2017
– Issuer: GraniteShares
BAR is a gold ETF structured as a grantor trust, which may provide investors with a certain degree of tax protection. It stores gold bullion in a vault in London. The sole holding of BAR is gold bullion.
Synthetic Gold ETFs: Unlike physically backed gold ETFs, synthetic gold ETFs invest in gold-backed assets rather than physical gold. Most synthetic gold ETFs hold derivatives, such as gold futures. While fund managers usually try to keep these ETFs at an asset value close to the spot price of gold, the actual valuation can fluctuate.
Leveraged Gold ETFs: Leveraged gold ETFs seek to amplify the returns of the underlying gold market index. They do this by investing in gold futures contracts, which allow the value of the ETF to increase faster than the price of gold. These funds take advantage of short-term price fluctuations. Gold ETFs are just one of the many forms of gold-backed investing. Explore these other common gold investment options.
What Are Some Factors that Can Affect the Price of a Gold ETF? So what is a gold ETF’s value determined by? The price of a gold ETF usually matches the value of gold, which is measured in terms of its spot price (or price per troy ounce). Gold’s spot price depends on factors like:
– Supply and demand
– Inflation
– Interest rates
– Uncertainty
– Gold production and mining rates