Here are some of the best gold ETFs for hedging.
Gold is the ultimate safe harbor asset. While it may be too volatile in the short term to combat inflation reliably, over the long run, it does act as a store of value. Since ancient times, humans have gravitated toward this shiny metal as both a measure of wealth and backing for various currencies. Today, holding gold offers investors protection against geopolitical and socioeconomic upheavals, and it remains highly sought-after by nation-states looking to build up currency reserves. Gold also offers a low correlation with both stocks and bonds, which provides a tangible diversification benefit when stocks and bonds fall in tandem during rising interest rate environments. Year to date through July 20, gold is down only 7%, compared with the 16.9% loss suffered by the S&P 500. Investors looking to hold gold inexpensively in their portfolios can buy these seven gold exchange-traded funds, or ETFs, in 2022.
SPDR Gold Shares (ticker: GLD)
The largest and most liquid physically backed gold fund in the world is GLD. Debuting in 2004 on the New York Stock Exchange, GLD has since attracted assets under management, or AUM, of $55.6 billion, which corresponds to more than 32 million ounces of gold bullion held in trust. Buying a share of GLD represents fractional, undivided beneficial ownership interest in a corresponding slice of that hoard. Compared with buying physical bullion, GLD is not impacted by storage, insurance or large bid-ask spreads, which makes it an easy, inexpensive way to gain gold exposure. Because GLD is so large and liquid, the ETF has become highly popular for trading, with a well-developed options chain. Currently, holding GLD costs an expense ratio of 0.40% annually, or about $40 in fees on a $10,000 investment.
SPDR Gold MiniShares (GLDM)
GLD might be large and liquid, but it’s not exactly the cheapest of gold ETFs. While traders might appreciate its low bid-ask spread and options chain, buy-and-hold investors might be put off by its comparatively high 0.40% expense ratio. In response, SPDR released GLDM, a “mini” version of GLD. GLDM offers the same exposure as GLD to a vault of physical gold bullion. As with GLD, a share of GLDM represents fractional, undivided beneficial ownership interest in said gold deposits. While GLDM has lower AUM and liquidity, it is still more than sufficient for buy-and-hold investors. GLDM has a lower price per share and its expense ratio currently stands at just 0.10%. This is the cheapest on the market as of now for gold ETFs.
iShares Gold Trust (IAU)
IAU is another popular gold ETF from BlackRock, one of the largest asset managers in the world. Like GLD, IAU offers passive exposure to the daily spot price of gold by tracking the London Bullion Market Association (LBMA) Gold Price Index. IAU accomplishes this by holding roughly 516 tonnes, or 16 million ounces of gold bullion, in a secure vault. For investors, it is easier to purchase a share of IAU than it is to buy a similar amount of physical gold, insure it, store it and assay it upon sale. To date, IAU has about $30 billion in assets, which is more than GLDM but less than GLD. IAU currently sits between GLD and GLDM in price as well, with an expense ratio of 0.25%, or $25 per year in fees for a $10,000 investment.
Aberdeen Physical Gold Shares ETF (SGOL)
Before GLDM reduced its expense ratio to just 0.10%, the title of cheapest gold ETF previously went to SGOL, which currently costs a management expense ratio of 0.17%. Like the previous ETFs on this list, SGOL is also a physically backed gold trust, with deposits held in secure vaults located in Zurich and London. The vault is inspected twice annually by an independent commodity auditor (with one visit being random) and currently holds more than 3,500 bullion bars totaling roughly 1.4 million ounces of gold. SGOL has attracted about $2.6 billion in AUM since its debut on Sept. 9, 2009. The ETF is also priced based on the LBMA’s gold price index.
GraniteShares Gold Trust (BAR)
BAR is very similar to SGOL. Both ETFs hold LBMA gold bars in London vaults, inspected twice a year (with one inspection being random), and cost an expense ratio of 0.17%. The difference is better transparency by BAR’s fund manager. GraniteShares actually publishes a full list of gold bars held by BAR on a daily basis on the ETF’s webpage. This list outlines the exact serial ID, origin, fineness, weight, packing ID, quantity and current location of each gold bar held. This may be preferable to investors who like to be more involved with their gold holdings and have assurance of the asset backing their investment.
ProShares Ultra Gold (UGL)
Investors looking to trade gold often may seek leveraged exposure to better enhance gains (but this can also magnify losses). An alternative to using margin, gold futures or GLD options is via a leveraged ETF like UGL. UGL seeks a return that is two times the daily performance of its underlying benchmark, the Bloomberg Gold Subindex. The ETF achieves this through the use of swaps, which are complex derivatives held with large third-party U.S. investment banks, plus cash collateral held for gold futures contracts. UGL is highly volatile and is not intended to be held for periods longer than a day. Over time, compounding returns (and losses) can cause results that vary from its two-times-daily leverage target. UGL is also relatively costly, with an expense ratio of 0.95%.
WisdomTree Efficient Gold Plus Equity Strategy Fund (GDE)
A common problem with adding gold to an investment portfolio is that it reduces allocations to other assets. By adding gold, investors have to reduce their stock or bond allocations to make room, which can reduce total returns. GDE solves this via creative uses of gold futures. For every $100 invested in the ETF, $90 is allocated toward 500 large-cap U.S. equities and $10 is invested in U.S. Treasurys, which serve as collateral for gold futures contracts. These gold futures provide leverage, magnifying that $10 collateral into $90 worth of gold exposure. The end result is an innovative 1.8-times leveraged portfolio of 90% stocks and 90% gold. Unlike most leveraged ETFs, GDE is intended as a long-term holding, as the leverage is not reset daily. The ETF is also fairly cheap, with an expense ratio of 0.20%.
7 best gold ETFs to hedge volatility in 2022:
— SPDR Gold Shares (GLD)
— SPDR Gold MiniShares (GLDM)
— iShares Gold Trust (IAU)
— Aberdeen Physical Gold Shares ETF (SGOL)
— GraniteShares Gold Trust (BAR)
— ProShares Ultra Gold (UGL)
— WisdomTree Efficient Gold Plus Equity Strategy Fund (GDE)
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Update 07/21/22: This story was published at an earlier date and has been updated with new information.