Here are some of the best gold ETFs for hedging.
Investors hoard gold for many reasons, whether as a perceived hedge against inflation, currency devaluation or political unrest, or simply because they like how it looks. However, a good reason to consider including some gold in your portfolio is volatility reduction. While the price of gold in isolation can fluctuate dramatically, the asset also has a persistently low historical correlation with stocks and bonds. Case in point, when inflation was running amok between 1972 and 1980, gold returned an annualized 33.6%, compared to 8.6% for U.S. stocks and 3.3% for U.S. 10-year Treasurys. Thus, holding a portion of your portfolio in gold and rebalancing periodically can provide diversification benefits. While investors can buy bullion or coins, an easier option that can be implemented in any brokerage account is via a gold exchange-traded fund, or ETF. Here are the seven best gold ETFs to hedge volatility in 2023.
SPDR Gold MiniShares (ticker: GLDM)
Buying physical gold can be costly. Investors can get ripped off from the high spreads, storage costs, insurance premiums and assaying fees. For long-term investors trying to gain exposure to gold in an inexpensive way, ETFs like GLDM might be ideal. Buying shares of GLDM provides exposure to physical gold bullion held in secured, audited storage in a vault. Each share of GLDM represents beneficial ownership in its gold deposits. Currently, GLDM costs an expense ratio of 0.1%. This works out to $10 annually for every $10,000 invested.
SPDR Gold Shares (GLD)
Gold’s high volatility and sensitivity to economic and market forces make it a popular asset for day and swing traders. These investors tend to favor higher liquidity over low expense ratios. For traders, minimizing bid-ask spreads and having access to a well-developed options chain is critical. For trading, GLD is a better alternative to GLDM. A great way to think about GLD is as the “bigger sibling” of GLDM. They both track the same gold deposits, but GLD has a higher share price, larger amount of assets under management, or AUM, of $50 billion, and more volume traded daily. Its expense ratio is higher than GLDM’s at 0.4%, but this doesn’t deter traders with short holding periods.
iShares Gold Trust (IAU)
A popular alternative to GLD for many years has been IAU, largely thanks to the brand-name recognition of its asset manager, BlackRock. IAU provides exposure to the spot price of gold as defined by the London Bullion Market Association Gold Price Index by holding physical bullion in secured, audited vaults. Currently, the ETF has 451.5 tons of gold in trust and has attracted over $25 billion in AUM. In terms of fees, IAU costs an expense ratio of 0.25%. It might not be as large and liquid as GLD, but it certainly comes close, and at a much lower expense ratio.
iShares Gold Trust Micro (IAUM)
The title of “cheapest U.S. gold ETF” currently goes to IAUM, which is basically BlackRock’s version of GLDM. GLDM is to GLD as IAUM is to IAU. BlackRock saw an opportunity to undercut GLDM’s low expense ratio of 0.1%, and they did so by one basis point, or by 0.01%. With an expense ratio of 0.09%, IAUM is as low cost as it gets for now. The ETF also trades at roughly half the share price of IAU, making it slightly more affordable for investors. Since its inception in 2021, the ETF has attracted just over $1 billion in AUM, largely thanks to its cheap expense ratio. Currently, IAUM holds 18.64 tons of gold in trust.
Aberdeen Physical Gold Shares ETF (SGOL)
Before GLDM and IAUM came along, the lowest-cost U.S. gold ETF was SGOL. This is no longer the case, however SGOL is still worth a look. Like many spot gold ETFs, SGOL is backed by physical bullion, in this case gold stored in Zurich and London vaults. The gold held is all fully allocated, meaning that each bar is accounted for individually by an independent auditor. On SGOL’s webpage, investors can find a 53-page document that lists every gold bar currently held by the ETF, with its brand, serial number, shape, weight, assay and vault location. For investors who like transparency, SGOL might be a good option. The ETF costs an expense ratio of 0.17%.
GraniteShares Gold Trust (BAR)
BAR is another example of a highly transparent gold ETF. The ETF holds bullion stored in a London vault, the custodian of which is ICBC Standard Bank PLC. The vault is audited twice a year by Bureau Veritas, an independent auditor. The gold bars also cannot be loaned out. On a daily basis, GraniteShares publishes a list of all the gold bars held by the ETF. The list includes the location, quantity, serial number, fineness, gross weight and packing ID of each bar of gold stored. BAR costs an expense ratio of 0.1749%. The ETF has attracted roughly $876 million in AUM and holds 454,198 Troy ounces of gold in storage.
ProShares Ultra Gold (UGL)
Traders looking for enhanced exposure to gold price movements can buy GLD options, but this approach can be complex. Another option is UGL, which seeks a daily return that is two times the performance of its benchmark, the Bloomberg Gold Subindex. If the index rises 1% in a day, UGL will return 2%. Conversely, if the index falls 1% in a day, UGL will fall 2%. Thus, UGL is a leveraged ETF. It’s important to note that the leverage target is only intended to be accurate for a single day. Over long periods of time, the returns of UGL might drift away from being exactly two times that of its index due to volatility drag and compounding. Thus, UGL is best suited for short-term holding periods as a trading instrument. The ETF also costs a higher expense ratio of 0.95%.
7 of the best gold ETFs to hedge volatility in 2023:
— SPDR Gold MiniShares (GLDM)
— SPDR Gold Shares (GLD)
— iShares Gold Trust (IAU)
— iShares Gold Trust Micro (IAUM)
— Aberdeen Physical Gold Shares ETF (SGOL)
— GraniteShares Gold Trust (BAR)
— ProShares Ultra Gold (UGL)
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7 Best Gold ETFs to Hedge Volatility in 2023 originally appeared on usnews.com
Update 11/22/22: This story was published at an earlier date and has been updated with new information.
