Gold has a low historical correlation with stocks and bonds.
Gold is often considered a safe haven investment that can hold steady or even rise amid negative economic forecasts and environments. While the price of gold in isolation can fluctuate dramatically, the asset also has a low historical correlation with stocks and bonds. You can invest in gold through mining companies, streaming and royalty companies, futures and physical gold, as well as through exchange-traded funds, or ETFs. These funds invest in physical gold or gold companies under a ticker symbol that can be easily bought and sold like a stock. They’re an easy way to get exposure to an asset that can help cushion a portfolio against volatility. Here are seven of the best gold ETFs to hedge volatility in 2023.
SPDR Gold Shares (ticker: GLD)
One popular way to own gold is through physical gold in the form of bars, coins or jewelry. A downside is that you have to deal with security, transportation and insurance. With this ETF, all you have to do is buy shares, which are backed by physical gold stored in vaults where security and insurance are somebody else’s problem. This ETF tends to do well tracking the spot price of gold, and it doesn’t have to constantly roll out of expiring futures contracts. Also, when people buy shares of this ETF, which then buys gold on the market, that helps boost the price of gold and the ETF itself. The fund has a net expense ratio of 0.4%.
SPDR Gold MiniShares (GLDM)
This fund is like a little sibling of GLD. It has a lower expense ratio of 0.1% and a smaller share price. But it is also less liquid and has fewer assets under management. “We like gold ETFs that are backed by the physical asset,” says Richard Michaud, CEO of New Frontier Advisors. “GLD was the first, but there are now alternatives with excellent liquidity and low expense ratios. GLDM is the optimal choice for most long-term investors.” Holding gold, or any asset, for a longer period of time can smooth out the ups and downs that come with daily trading.
iShares Gold Trust (IAU)
This physically backed fund has been a popular alternative to GLD for years. It 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. Backed by BlackRock, the fund has a lower expense ratio than GLD but is bigger and more liquid than GLDM. The iShares Gold Trust is a solid choice for low expenses and diversification, according to Dennis Shirshikov, a finance, economics and accounting professor at City University of New York and head of growth with real estate investing company Awning. IAU has an expense ratio of 0.25%.
iShares Gold Trust Micro (IAUM)
This ETF is BlackRock’s answer to GLDM. IAUM has a slightly lower expense ratio than GLDM, at 0.09%. At the same time, it is much less liquid and has fewer assets under management. But investors who are looking for a cheaper share price will appreciate IAUM, which closed at $19.52 on Feb. 1, roughly half the cost of GLDM’s shares. “Including gold in an optimized portfolio can increase risk-adjusted return even if gold has no return above inflation,” says Michaud. “This conservative approach to allocating to gold avoids the risks inherent to predicting the future.”
Aberdeen Physical Gold Shares ETF (SGOL)
Aberdeen Physical Gold Shares ETF is also backed by physical bullion. The gold held is all fully allocated, meaning that each bar is accounted for individually by an independent auditor. And SGOL provides documentation for every gold bar currently held by the ETF, with its brand, serial number, shape, weight, assay and vault location. That transparency can be reassuring to investors. “Right now, we’re seeing increased demand for gold as a hedge against inflation and geopolitical uncertainty,” Shirshikov says. “I expect to see continued demand for gold due to ongoing macroeconomic and geopolitical tensions, leading to higher prices and potentially higher returns for investors.” SGOL has an expense ratio of 0.17%.
VanEck Gold Miners ETF (GDX)
In addition to buying ETFs that are physically backed by bullion in vaults, investors can buy ETFs of mining companies. To help cushion the risk of investing in a single mining company, with its management and project risk, investors can consider ETFs that group mining companies together based on certain criteria. This one tracks the NYSE Arca Gold Miners Index, which is a barometer of the overall performance of gold mining companies. Gold miners’ stocks can outperform the price of gold as the metal rises in value because operating and financial leverage lead to a higher percentage of increased free cash flow. GDX has an expense ratio of 0.51%.
VanEck Junior Gold Miners ETF (GDXJ)
In addition to large mining companies with producing operations, the gold mining sector also has so-called junior miners that are primarily involved in exploring for gold, developing mines or producing much smaller amounts than their larger brethren. These miners tend to be more risky, and so an ETF can be particularly helpful. That diversification can be a double-edged sword because it means the ETF as a whole may not perform as well as a single gold miner that strikes it rich. This ETF tracks the MVIS Global Junior Gold Miners Index, a benchmark for the overall performance of small-capitalization gold mining companies. GDXJ’s expense ratio is 0.52%, a hair higher than the cost of GDX.
7 best gold ETFs to hedge volatility:
— SPDR Gold Shares (GLD)
— SPDR Gold MiniShares (GLDM)
— iShares Gold Trust (IAU)
— iShares Gold Trust Micro (IAUM)
— Aberdeen Physical Gold Shares ETF (SGOL)
— VanEck Gold Miners ETF (GDX)
— VanEck Junior Gold Miners ETF (GDXJ)
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7 Best Gold ETFs to Hedge Volatility in 2023 originally appeared on usnews.com
Update 02/02/23: This story was previously published at an earlier date and has been updated with new information.
