A Stake in Gold, Through a Trio of ETFs

In November 2004, State Street Global Advisors launched the SPDR Gold Trust (GLD) exchange-traded fund, the first of its kind in the U.S. It quickly became one of the most successful commodity products, racking up $1 billion in assets in a matter of days. 

The ETF, now the biggest gold ETF, allowed investors another option for exposure to gold, the world’s oldest currency, which at times has been referred to as the “barbarous relic.” 

(On a side note, the first gold ETF, the Gold Bullion Securities, was launched a year earlier by Graham Tuckwell, the chairman of etf.com parent ETFS Capital.)  

Over the past years, other products that hold physical gold have competed with GLD. The iShares Gold Trust (IAU) and the Granite Shares Gold Trust (BAR) are two of GLD’s many competitors.  

Comparing Gold ETFs 

GLD is the undisputed leader of the physical gold ETFs. Trading around $180, the fund manages about $58 billion and trades an average of over 6.4 million shares daily. That reflects the price action of 1/10 of an ounce of the metal.  

BlackRock’s spot gold ETF, IAU, is trading around $36 a share, with $28 billion in assets. Its average of 3.6 million shares traded daily is slightly more than half of GLD. 

BAR, issued by Granites hares, trades at $19 and has $952 million in assets under management. It trades an average of over 700,000 shares daily, and at around six years old, is the youngest of the bunch. 

The three funds all track the London Bullion Market Association PM gold fixing price as their benchmark. On June 14, the value of gold futures’ 430,387 contracts at $1,970 per ounce was $84.8 billion. The ETFs have added liquidity to the gold futures and physical markets over the past years.  

Key Comparisons 

The continuous COMEX gold futures price rose from $1452.10 in March 2020 to $2,072 per ounce in March 2022 and May 2023, or 42.7%. Over the same period, the gold ETFs rose pretty much in line, around 43%. 

The ETFs reached the highs in August 2020 when gold futures traded to the $2,063 high, 42.1% above the March 2020 low. Over the period, the most liquid GLD turned in the best performance.  

Management fees or expense ratios are always critical when choosing any ETF. GLD’s ratio clocks in at 0.40%, IAU’s is 0.25% and BAR charges 0.17%. 

Ironically, GLD, with the highest expense ratio, delivered the highest return from the March 2020 low to the August 2020 high.  

Central Banks Load Up  

Gold’s bull market began in 1999 at $252.50 per ounce before any gold ETFs were available. Since the end of 2022, GLD, IAU and BAR have seen positive fund flows.  

Source: etf.com 

The Fund Flows tool shows more than $909 million of inflows into GLD since Dec. 30, 2022.  

Source: etf.com 

Over $418.51 million has flowed into IAU since the end of last year.  

Source: etf.com 

Over $15 million has flowed into BAR since late December 2022.  

Over the same period, open interest in the COMEX futures fell from 442,412 to 430,387 contracts. The total number of long and short positions in the gold futures market declined, while the three ETFs had a combined $1.342.9 billion of inflows.  

Paper Gold Debate  

Many gold bugs shun the physical ETFs and embrace holding the physical bars and coins. While gold metal is the direct investment route, it involves storage and insurance considerations. The ETFs bring exposure to investors’ standard stock market accounts, with the administrators covering the insurance and storage costs. 

Meanwhile, some believe that GLD, IAU and BAR are paper gold, carrying the risk that administrators may not deliver returns in some cases if gold prices explode higher as governments and regulators could impact the ETFs that are a substitute for the physical metal. However, over nearly two decades, GLD has done an excellent job tracking the gold price, and there is no reason why GLD, IAU and BAR will not continue to deliver upside returns if gold’s bull market continues.  

GLD is the most liquid physical gold ETF, and while it charges the highest expense ratio, it has posted the best returns. IAU and BAR charge less, and their per-share price is lower, making them more attractive to many investors and traders. If the over two-decade gold bull market continues, you can’t go wrong with any of the three. 

While there is nothing like owning those physical bars and coins, and futures offer liquidity, leverage, and a delivery mechanism, GLD, IAU and BAR have been, and are likely to continue to be, the next best thing for direct gold investment.