What are gold ETFs?
To understand the term, you should first know the meaning of ETF. An ETF refers to an exchange-traded fund. The fund can represent various kinds of assets like stocks and precious metals, and it can track an underlying index.
The gold ETF is a fund based on gold. Investors are supposed to profit from the change of the gold price. The price change is usually depicted via a gold index. Yet investors do not own the exact gold bars.
When you are buying a gold ETF, you are actually buying a gold-backed contract. In other words, as you purchase the gold ETF, you do not receive real gold but the cash equivalent.
Best gold ETFs in 2020
If you are seeking a suitable gold ETF, you may take a look at the following three gold ETFs we recommend.
GLD – SPDR Gold Trust ETF
This fund is often regarded as the top choice for many investors. It is the largest fund investing in gold. SPDR Gold Trust is traded at very high volumes, probably 7 million shares each day. The gold bars of this fund are held in a London vault.
Meanwhile, the bid/ask spread of the fund is minimal. The smaller the bid/ask spread is, the greater the liquidity can be. This is perhaps the most significant advantage of the fund. Besides, the fund has reached a total return of 230% ever since it was listed to the public.
The defect, however, is that the expense ratio (0.40%) is a little bit higher than other funds.
SGOL – Aberdeen Standard Physical Swiss Gold Shares ETF
This ETF holds its assets in a Swiss vault. The assets are audited twice a year, so you can fully trust the vault. The expense ratio (0.17%) of the fund is quite reasonable, compared with GLD.
Similar to other ETFs, this fund is also equivalent to the investment in gold. However, you might find it relatively difficult to sell the fund due to its questionable liquidity.
IAU – iShares COMEX Gold Trust ETF
The gold of IAU is supported by JP Morgan Chase whose gold bars are kept in vaults all over the world. Although IAU is smaller than GLD, the expense ratio (0.25%) is much lower than that of GLD.
If you cannot afford the high expense ration of GLD, IAU could be a good alternative. Despite the low amount of assets, what makes IAU attractive is that investors do not have to worry too much about the liquidity.