HomeCommodityGold ETFs, gold bars or miners stock? Your questions answered

Gold ETFs, gold bars or miners stock? Your questions answered

Gold has been a hot topic lately hitting the headlines around the world. Those who studied global  economic history are not surprised. This shiny metal has been a reliable hedge in times of uncertainty over the last centuries. Experienced investors always keep some gold in their portfolios and see it as a safe haven when markets are crumbling down. This time is no different.

So what now?  Should you order some gold bars to be delivered to your doorstep? That’s not necessary, but it’s doable. Let’s see what other options you have to choose from.

Physical gold vs. gold ETFs

Do you want to keep your gold bars at home or inside your private vault? If you’re not afraid of thieves, then go on, buy yourself some shiny metal and enjoy the view. Keep in mind that if you ever  need to quickly liquidate your holdings, it could be hard to do with larger (1kg or more) gold bars. That being sad, I think that you should consider buying gold coins that are really easy to sell anywhere in the world. The most popular and recognizable coins are South African Kruggerands, Canadian Maple Leafs, American Eagles and Austrian Vienna Philharmonics. 

Let’s assume that you can not afford a vault with reinforced steel doors straight out from a James Bond movie, and you need your money to be fast and easily accessible. In this situation, you should consider gold ETFs. 

A gold ETF (Exchange Traded Fund) is an investment vehicle that you can buy just like standard shares. Its price changes with the price of gold (spot or future contracts). It works this way because such funds hold huge amounts of physical gold. For example: you decide to buy 1 million shares of a given ETF, and your investment represents 1% of the fund. This makes you the lawful owner of 1% of the entire gold holdings kept by this ETF. 

Gold price ETF funds – frequently asked questions

I assume you’d like to have all relevant information provided as quickly as possible, right? So let’s get to business! Below you can find the answers to the most common questions asked across the internet.

Is gold ETF better than physical gold?

Well, it depends. You don’t trust your government and the banking system? Keep your gold at home or in your private vault. Or maybe you prefer fast liquidity and don’t want to hassle with heavy bars of metal? Then a gold ETF  should suit your needs.  

What is the best gold ETF to buy?

To determine which ] gold etf is best for you, you have to do your own research. Look for funds run by well-known financial institutions and fully backed by physical gold.

Do Gold ETfs pay dividends? 

It depends. You see, ‘regular’ gold ETFs don’t, but you can invest in a gold miner ETF. Many people are confused when it comes to this investment vehicle, so let’s try to break it down in the next paragraph.

Gold miner ETF – how does it work?

People often confuse gold ETF funds with gold miners ETFs. Although those two usually soar or plunge together, they are fundamentally different. When you buy a gold miners ETF, for example VanEck Vectors Gold Miners ETF (GDX) or Sprott Gold Miners ETF (GDM), you get a package of stocks issued by selected mining companies. Their value is tied to the current price of the underlying index tracking the performance of the mining companies. Keep in mind that the price of gold may go way up while simultaneously the gold miners ETF you bought may actually… go down. That’s possible when the gold mining sector suffers from some difficulties, such as depleted mines or climate change.

What is the minimum investment in gold ETFs?

You can easily buy as few as one share of a gold ETF of choice. For example, at the time of writing this article, one share of popular GraniteShares Gold Trust (BAR) costs around 18.8 USD which is approx 1/100 of the price of an ounce of gold (making it one of the cheapest gold ETFs). In other words, this is the minimum investment in this particular gold ETF. 

Is there a Vanguard gold ETF? I can’t find it anywhere

No, unfortunately Vanguard, a well-known and respected financial institution, does not offer gold ETFs for its customers.

What is the best performing gold ETF?

The answer is not as obvious as it may seem. Gold ETF funds are dependent on the performance of gold on the market – a commodity traded on spot and futures markets. The key factor here is the expense ratio of a given gold ETF. The higher it is, the lower is the return on your investment. Choose your gold mutual funds wisely.

XAU ETF – what is it?

A  common mistake people make is thinking that XAU (Philadelphia Gold and Silver Index) is an ETF. It’s an index that tracks over 20 mining companies stocks. 

Does iShares Gold ETF (IAU) actually hold the gold?

Yes, it does! iShares Gold Trust holds physical gold bars in reinforced vaults around the world. Actually, this is the most important thing to look at when choosing an ETF! Do your own research and always make sure that the gold fund you’re investing in is fully backed by physical gold bars. Some funds even let you claim your gold If you ask for it!

Jakub Borowiec
Jakub Borowiec
Financial markets enthusiast. I studied management at the University of Economics in Wroclaw.

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