Gold remains a vital part of an investor’s portfolio, driven by growing diversification needs and tariff-driven uncertainty. Central banks’ increasing purchases of the precious metal have also boosted gold prices.

The Trump administration’s chaotic tariff policies and escalating geopolitical tensions in the Middle East are making investors risk-averse and increasing demand for safe-haven assets.

Additionally, to safeguard one’s portfolio from a potential economic slowdown and capitalize on a weakening greenback, investors can increase their exposure to the precious metal. Here are a few key reasons why investing in gold ETFs could be a smart move.

Trump’s Tariff Threats Remain

Risk-averse investors are turning to the yellow metal, following President Trump’s recent announcement of potential unilateral tariffs. According to CNBC, escalating trade uncertainties and the threat of new tariffs have emerged as the leading concern for global investors, surpassing all other economic risks.

According to a survey by British investment firm Schroders, as quoted on CNBC, nearly 63% of institutional investors and wealth managers cited trade levies as the most critical macroeconomic factor influencing their investment strategies.

Geopolitical Heat Rises

Investor interest in gold intensified after the United States ordered some embassy staff to leave Baghdad and authorized military families to exit the Middle East, following Iran’s threat to target U.S. bases if nuclear talks break down.

Central Banks Fuel Gold Demand Boom

Sustained central bank buying could drive gold prices up. According to the European Central Bank, the yellow metal has surpassed the euro to become the second-most significant reserve asset globally for central banks, as quoted on the Financial Times.

Major buyers included India, China, Turkey and Poland, as reported by the World Gold Council, highlighting a broad and sustained appetite for the metal.

Bullion made up 20% of global official reserves last year. Per the Financial Times, a 30% surge in gold prices last year contributed significantly to its growing share of global reserves. The yellow metal continues its rally in 2025, climbing 27% year to date.

Inflation Development and Interest Rates

Softer-than-expected U.S. inflation data boosted investor confidence that the Fed could begin cutting interest rates as early as September, with traders pricing in a likelihood of a September rate cut, according to Reuters. Per CME FedWatch tool, markets are anticipating a 72.7% likelihood of a rate cut in September.

The value of the greenback is closely related to the Fed’s monetary policies. The greenback's value tends to move inversely with interest rate adjustments by the Fed. Interest rate cuts by the Fed make the dollar less attractive to foreign investors as this weakens the U.S. dollar.

Per Trading View, U.S. Dollar Index (DXY) has fallen 8.27% over the past six months and 9.58% year to date. Gold prices are inversely related to the value of the U.S. dollar. A weaker U.S. dollar generally leads to higher demand for gold, pushing its price upward as it becomes more affordable for buyers holding other currencies.

ETFs to Consider

Amid the current economic and geopolitical climate, investors should adopt a long-term passive investment strategy to weather short-term market storms. Increasing exposure to the yellow metal stands out as a smarter play than attempting to time the market, an approach that many investors may be tempted to employ.

Investors can consider SPDR Gold Shares (GLD Quick QuoteGLD - Free Report) , iShares Gold Trust (IAU Quick QuoteIAU - Free Report) , SPDR Gold MiniShares Trust (GLDM Quick QuoteGLDM - Free Report) , abrdn Physical Gold Shares ETF (SGOL Quick QuoteSGOL - Free Report) and Goldman Sachs Physical Gold ETF (AAAU Quick QuoteAAAU - Free Report) to increase their exposure to the yellow metal. Each fund currently has a Zacks ETF Rank #3 (Hold).

With a one-month average trading volume of about 10.6 million shares, GLD is the most liquid option, ideal for active trading strategies. However, implementing an active strategy in the current landscape may not be the most effective approach.

GLD has also gathered an asset base of $99.87 billion, the largest among the other options. Performance across all funds has remained largely consistent. The funds have gained about 15.5% over the past three months and 39% over the past year.

Regarding annual fees, GLDM is the cheapest option, charging 0.10%, which makes it more suitable for long-term investing.