Methodology

For this list of the best gold ETFs, we focused on funds that provide direct exposure to physical gold bullion rather than companies that mine or produce gold. We considered expense ratios, fund size, trading liquidity, investment structure, track record and suitability for different investment objectives.

The selections emphasize four widely used gold ETFs with established structures and significant investor adoption. IAUM and GLDM stand out for their low costs and suitability for long-term investors. GLD stands out for liquidity and trading flexibility, while IAU provides a balance between cost, size and history.

Expense ratios and fund information are subject to change, so investors should review the latest prospectus and fund information before investing.

Understanding Gold ETFs

What Are Gold ETFs?

Gold ETFs are exchange-traded investment products designed to give investors exposure to movements in the price of gold. Shares trade on a stock exchange throughout the trading day, allowing investors to buy and sell them through a standard brokerage account.

Physically backed gold ETFs hold bullion on behalf of the trust. The value of the shares is intended to correspond closely with the value of the underlying gold, although expenses, trading costs and supply-and-demand conditions can cause the ETF's market price to differ from its net asset value.

Gold ETFs eliminate many of the practical challenges of owning physical bullion. Investors generally do not need to arrange for transportation, home storage, vaulting or insurance.

Related: Best Gold Stocks to Buy Now

Types of Gold ETFs

Gold-related ETFs generally fall into two broad categories: funds backed by physical gold and funds that invest in gold-mining companies.

Physically-Backed Gold ETFs

Physically backed gold ETFs hold gold bullion and are designed to track the metal's price. IAUM, GLDM, GLD and IAU are examples.

These funds provide relatively direct exposure to gold. If the price of gold rises, the value of the ETF will generally rise as well, minus expenses and tracking differences.

Gold Mining ETFs

Gold-mining ETFs invest in shares of companies that explore for, develop or produce gold. Examples include VanEck Gold Miners ETF (GDX) and VanEck Junior Gold Miners ETF (GDXJ).

Mining ETFs can provide greater upside when gold prices rise because mining companies may see their profit margins expand. However, they also carry stock-market, operational, management, labor, energy-cost and geopolitical risks.

A gold-mining ETF therefore should not be viewed as the same investment as a physical gold ETF. Mining companies can decline even when gold prices rise.

Benefits of Buying Gold ETFs

Gold ETFs offer several potential advantages.

• Convenience. Investors can buy and sell gold exposure through an ordinary brokerage account.
• Liquidity. Major gold ETFs trade throughout the trading day.
• Diversification. Gold may behave differently from stocks and bonds during certain market environments.
• No physical storage. Investors do not have to personally store or insure bullion.
• Lower barriers to entry. Investors can obtain gold exposure without buying a large physical bar.
• Transparency. Physically backed trusts generally disclose holdings and publish information about their gold.
• Portfolio flexibility. Gold ETFs can be incorporated into taxable brokerage accounts and, subject to custodian rules, retirement accounts.

Risks of Buying Gold ETFs

Gold ETFs are not risk-free investments.

• Gold-price risk. The value of the ETF can fall when gold prices decline.
• Interest-rate risk. Higher real yields can reduce the appeal of non-yielding gold.
• Currency risk. A stronger U.S. dollar can weigh on gold prices.
• No income. Physical gold does not produce dividends or interest.
• Expense risk. Annual fund expenses gradually reduce returns.
• Tracking risk. ETF performance can differ from the spot price of gold.
• Market-price risk. ETF shares can trade above or below their NAV.
• Tax risk. Certain physically backed gold ETFs can receive tax treatment associated with collectibles rather than ordinary stocks.

Are Gold ETFs Safe?

Gold ETFs are regulated investment products that can provide convenient exposure to gold, but "safe" should not be confused with "guaranteed."

A physically backed gold ETF generally owns bullion rather than relying on a mining company's ability to produce gold. That can reduce some of the operational risks associated with gold-mining stocks.

However, investors remain exposed to fluctuations in gold prices. The value of ETF shares can decline, and investors can lose principal.

Investors should also understand the legal structure of a particular fund. The major physically backed gold trusts discussed here are not conventional investment companies registered under the Investment Company Act of 1940. Investors should read the fund's prospectus for details about the trust, custody arrangements and risks.

Do Gold ETFs Pay Dividends?

Generally, physically backed gold ETFs do not pay dividends.

Gold bullion does not generate interest or cash flow. Instead, investors seek to benefit from changes in gold prices. Funds may sell small amounts of gold to cover expenses, which means the amount of gold represented by each share can decline over time.

Gold-mining ETFs are different. Mining companies can generate profits and pay dividends, so a gold-mining ETF may distribute dividends to shareholders.

How Are Gold ETFs Taxed?

The tax treatment of a gold ETF depends on its structure and the investor's circumstances.

For U.S. investors, shares of certain physically backed gold trusts can be treated for federal tax purposes as an interest in a trust holding collectibles. Under current federal rules, long-term gains attributable to collectibles can be subject to a maximum 28% rate rather than the 20% maximum rate generally associated with most long-term capital gains.

Investors should consult a qualified tax professional regarding their individual situation.

How Are Gold ETFs Taxed Compared With Physical Bullion?

The tax treatment of many physically backed gold ETFs can be similar to that of physical gold because both can fall under the IRS rules governing collectibles.

The important distinction is that an ETF simplifies ownership. Investors buy and sell shares rather than taking possession of bullion. Physical gold, meanwhile, can involve additional costs for dealer spreads, storage and insurance.

Tax treatment can differ depending on the specific product, account type and transaction, so investors should review the fund's tax documents and consult a tax adviser.

What Is the Tax Rate on Long-Term Capital Gains for GLD?

For U.S. individual investors, long-term gains from GLD generally can be subject to a maximum 28% federal tax rate because GLD is structured to hold gold bullion, which is treated as a collectible for federal tax purposes.

Short-term gains on shares held for one year or less generally are taxed at ordinary income rates.

The 28% figure is a maximum rate, not necessarily the rate every investor will pay. State taxes and an investor's broader tax situation can also affect the final tax bill.

Key Metrics to Consider Before Buying Gold ETFs

Investors should consider several metrics before selecting a gold ETF.

• Expense ratio. Lower expenses can be especially important for long-term investors.
• Assets under management. Larger funds can benefit from economies of scale and established trading infrastructure.
• Trading volume. Higher volume can make it easier to enter and exit positions.
• Bid-ask spread. Narrow spreads can reduce trading costs.
• Tracking difference. Investors should compare ETF performance with its underlying gold benchmark.
• Fund structure. Investors should understand whether the fund holds physical gold, mining stocks, futures or other instruments.
• Gold custody. Review who holds the bullion and where it is stored.
• Premium or discount to NAV. Large deviations can increase transaction risk.
• Options availability. This can matter for active traders and investors using hedging strategies.
• Tax treatment. Physically backed gold trusts can receive different tax treatment from conventional stock ETFs.

Related: Best ETFs to Buy Now

Portfolio Allocation of Gold ETFs

Gold generally works best as a component of a diversified portfolio rather than as a replacement for stocks and bonds.

There is no universal allocation that works for every investor. A younger investor with a long time horizon and a high tolerance for equity volatility may have little need for gold, while an investor seeking greater diversification may choose to maintain a modest precious-metals allocation.

Investors should also avoid assuming that gold will always rise when stocks fall. Gold can decline alongside equities, particularly during periods when investors are raising cash or when interest rates and the dollar are moving sharply higher.

The appropriate allocation depends on risk tolerance, investment objectives, time horizon and existing exposure to commodities and precious metals.

Is It Better to Buy Individual Gold Stocks or an ETF?

For most investors seeking direct exposure to gold prices, a physically backed gold ETF is generally a more straightforward choice than an individual gold-mining stock.

A gold ETF provides exposure to the commodity itself, while an individual mining company is affected by many additional factors. These include production costs, mine grades, labor expenses, environmental regulations, management decisions, debt levels and geopolitical risks.

Gold stocks can outperform gold during favorable periods because mining profits may increase faster than the price of the metal. However, they can also underperform substantially.

Investors seeking commodity exposure may therefore favor a physical gold ETF, while investors willing to take additional company-specific risk may consider mining stocks.

How to Choose Gold ETFs

Investors should start by determining what they want the gold investment to accomplish.

If the objective is long-term exposure at the lowest possible cost, IAUM and GLDM are strong candidates. If the objective is active trading, GLD's liquidity and options market make it particularly useful. IAU provides an established middle ground.

The right choice is not necessarily the ETF with the highest recent return. Investors should consider costs, liquidity, structure, taxes and how the ETF fits within the overall portfolio.

Should I Buy a Physical Gold ETF or a Gold Mining ETF?

A physical gold ETF is generally better suited to investors who want the performance of gold itself.

A gold-mining ETF may be more appropriate for investors who want equity exposure and are willing to accept additional operating and company-specific risks in exchange for potentially greater upside.

The distinction is important. A mining company's profitability can increase substantially when gold prices rise, but it can also be hurt by rising fuel costs, declining production, operational problems or poor management.

Are There Hidden Costs When Buying Gold ETFs?

Gold ETFs generally disclose their expense ratios, so the biggest ongoing cost is not necessarily hidden. However, investors should consider other costs.

These can include brokerage commissions, bid-ask spreads, the difference between the ETF's market price and NAV, taxes and the opportunity cost associated with holding an asset that does not generate income.

Physical gold has its own costs, including dealer markups, storage and insurance. These expenses are one reason ETFs can be attractive for investors seeking convenient gold exposure.

How to Buy Gold ETFs

Buying a gold ETF is generally similar to buying a stock.

1. Open a brokerage account.
2. Determine how much gold exposure fits your portfolio.
3. Research the ETF's expense ratio, structure and liquidity.
4. Enter the ETF ticker into your brokerage platform.
5. Choose the number of shares or dollar amount to invest.
6. Consider using a limit order, particularly when trading less-liquid products.
7. Monitor the position as part of your overall asset allocation.

Investors should remember that ETFs trade at market prices, which can differ from NAV. Frequent trading can also increase transaction costs and potentially create unnecessary tax consequences.

Alternative to Gold ETFs

Investors who do not want to use gold ETFs have several alternatives.

• Physical gold. Investors can purchase coins or bars directly and take responsibility for storage and insurance.
• Gold-mining stocks. Individual mining companies offer direct equity exposure but carry company-specific risks.
• Gold-mining ETFs. These provide diversified exposure to multiple mining companies.
• Gold futures. Futures provide leveraged exposure to gold but are considerably more complex and carry additional risks.
• Gold mutual funds. Some mutual funds invest in gold-mining companies or other precious-metals assets.
• Gold-related royalty and streaming companies. These companies provide financing to miners in exchange for rights to a portion of future production.

Frequently Asked Questions About Gold ETFs

Can I Exchange My Gold ETF Shares for Physical Gold Bars?

Generally, individual retail investors cannot simply exchange a few ETF shares for physical gold However, the VanEck Merk Gold ETF (OUNZ) allows investors to take delivery of physical gold in exchange for their ETF shares.

Physically backed trusts typically create and redeem shares in large baskets through authorized participants. For example, IAU's creation and redemption mechanism operates in baskets of 50,000 shares, while GLD uses baskets of 100,000 shares.

Authorized participants can exchange qualifying baskets for the corresponding amount of gold, subject to the trust's procedures and applicable fees. Ordinary investors generally sell their ETF shares through the stock market instead of taking physical delivery.

Is It Cheaper to Buy Physical Gold or a Gold ETF?

The answer depends on the amount invested and how long the investment is held.

A gold ETF generally has an annual expense ratio, but investors avoid many of the costs associated with physical bullion, including dealer spreads, secure storage and insurance.

Physical gold has no annual ETF expense ratio, but the purchase price can include a dealer premium, and investors may incur ongoing costs for storage and insurance.

For investors who want convenient, liquid exposure rather than possession of bullion, a low-cost physical gold ETF can be more economical.

Are Gold ETFs Backed by Actual Physical Gold?

The four ETFs highlighted in this article — IAUM, GLDM, GLD and IAU — are physically backed by gold bullion.

Their structures are designed to hold gold rather than simply use mining stocks or gold futures to create exposure. The trusts' filings and fund websites provide information about their holdings and custody arrangements.

Physically backed gold ETFs generally do not lend their gold. The World Gold Council notes that U.S.-listed physically backed gold ETFs such as GLD, IAU and GLDM do not have securities-lending arrangements for their underlying gold.

Where Is the Physical Gold Backing the ETF Physically Stored?

The gold held by major U.S.-listed physically backed gold ETFs is stored in secure vaults operated by institutional custodians.

For example, IAUM's gold bullion is held by JPMorgan Chase Bank's London branch. GLDM lists JPMorgan Chase Bank as its gold custodian. GLD lists HSBC Bank and JPMorgan Chase Bank as gold custodians.

IAU's gold is held through its custodian arrangements, with the trust maintaining detailed information about its bullion holdings and bar list.

The exact vault location can vary based on the trust's custody arrangements and the use of sub-custodians. Investors should consult the current prospectus and bar list for the most up-to-date information.

How Safe Are Gold ETFs if the Stock Market Crashes or a Custodian Goes Bankrupt?

A stock-market crash does not automatically make physical gold disappear or become worthless. Gold ETFs are designed to provide exposure to the value of their underlying gold, so their performance can differ from that of broad stock indexes during market stress.

However, gold ETFs are not guaranteed investments. Their shares can decline if gold prices fall.

Custody risk is another consideration. Physically backed trusts use custodians to hold their bullion, and their legal documents establish arrangements governing ownership and custody. Allocated gold generally provides a stronger ownership claim to specific bars than unallocated gold, which represents a claim against an institution.

Investors should review the specific trust's prospectus and custody agreements rather than assuming every gold product has the same legal structure.

What Is the Difference Between an Allocated and Unallocated Gold ETF?

Allocated gold refers to specific physical gold bars that are assigned to a particular owner. Individual bars can generally be identified by characteristics such as serial number, weight and fineness.

Unallocated gold represents a claim against an institution for a specified amount of gold rather than ownership of specifically identified bars.

This distinction matters because allocated gold is generally not a liability of the custodian in the same way an unallocated claim can be. Investors evaluating gold products should therefore examine whether the underlying gold is allocated, how custody is structured and what claims investors have if a financial intermediary encounters difficulties.

Can I Hold Gold ETFs Inside a Roth IRA or Traditional Retirement Account?

Generally, investors can hold shares of many publicly traded gold ETFs, including physically backed gold ETFs, in a Roth IRA or traditional IRA if the brokerage or IRA custodian permits the investment.

The IRS rules for precious metals in retirement accounts can be complicated. Certain physical gold and other precious metals can qualify for IRA ownership when specific fineness and custody requirements are met. Separately, the purchase of shares of certain publicly traded gold ETFs by an IRA can be treated differently from an IRA directly purchasing collectible property.

Investors should confirm that their IRA provider permits the particular ETF and should consult a tax professional before making a retirement-account investment decision.

What Is the Difference Between a Gold ETF and a Gold IRA?

A gold ETF is a security that trades on a stock exchange and generally provides exposure to gold through a brokerage account.

A Gold IRA is a retirement account structure designed to hold qualifying precious metals through an approved custodian. Depending on the arrangement, the account can own physical gold that meets IRS requirements rather than shares of a publicly traded gold ETF.

The two approaches therefore differ substantially in structure. A gold ETF generally provides greater trading convenience and liquidity, while a Gold IRA is designed around ownership of qualifying physical precious metals within a retirement account.

Investors should also consider fees. Gold IRAs can involve account, custodian, storage and transaction costs, while gold ETFs primarily impose fund expenses and normal brokerage trading costs.

Investors should evaluate the tax consequences, fees, liquidity and custody arrangements before choosing between the two