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Gold is proving popular among investors looking to hedge against the market tumult caused by the coronavirus pandemic. And as gold prices rise, more and more investors are rushing to buy gold exchange-traded funds rather than purchasing bullion itself.
What are gold ETFs?
Gold ETFs are exchange-traded funds that give investors exposure to gold without having to directly purchase, store and resell the precious metal. Some gold ETFs directly track the price of gold, while others invest in companies in the gold-mining industry.
As with other types of ETFs, the issuing company buys stock in gold-related companies or purchases and stores gold bullion itself. Investors buy shares in the fund, whose value rises and falls with the underlying gold price or company stock value.
Gold is considered a safe haven investment, as its price often rises as stock markets tumble. Gold hit its all-time high of nearly $1,900 per ounce in September 2011, in the aftermath of the Great Recession. In recent months, the price of gold has been flirting with that record.
Meanwhile, investors are buying into gold ETFs in record numbers. In the first five months of this year, investors bought $33.7 billion worth of gold ETF shares, already eclipsing the previous annual record of $24 billion set in 2016, according to research from Gold.org.
Best performing gold ETFs for December 2020
Below is our list of best-performing gold ETFs. We exclude gold exchange-traded notes and leveraged gold ETFs:
SPDR Gold MiniShares Trust
GraniteShares Gold Trust
Aberdeen Standard Physical Gold Shares ETF
iShares Gold Trust
Perth Mint Physical Gold ETF
SPDR Gold Trust
VanEck Merk Gold
Invesco DB Gold Fund
iShares Gold Strategy ETF
Data current as of Dec. 5, 2020.
How to invest in gold ETFs
Here’s how to buy shares in a gold ETF:
Step 1: Find a gold ETF
You can typically find gold ETFs by searching for them on your broker's website. (No broker? Here's how to open a brokerage account.)
Step 2: Analyze the ETF
Two things to check before purchasing shares in a gold ETF:
Five-year returns. Most (but not all) gold ETFs are pegged to spot gold price, so returns should align with gold price moves.
Expense ratio. This is the ETF's annual fee, paid out of your investment in the fund. The average expense ratio for gold ETFs is 0.65%, according to ETF.com. Look for a low one.
And two important cautions: The average investor should avoid buying leveraged gold ETFs — these use financial derivatives and borrowed money to make bets on future price movements. Also, avoid gold exchange-traded notes. ETNs are secured debt obligations that don’t actually own the underlying gold (unlike ETFs) and have a greater risk of credit default.
These investments are strictly for pros and unsuitable for a buy-and-hold strategy favored by many investors saving for retirement.
Step 3: Buy the gold ETF
You can buy ETFs just like you’d buy a stock, through an online broker. A good approach is to buy them regularly to take advantage of dollar-cost averaging.
» Dive deeper: Learn more about how ETFs work.
For more, check out our full list of the best brokers for ETF investing.
Learn more about sector ETFs:
Disclosure: The author held no positions in the aforementioned securities at the time of publication.