Gold ETF Investors Are in It for the Long Term

Investors concerned about inflation have been putting money to work in gold ETFs, but the price impact has been minimal, with spot gold up 2% this year. 

A few times during this bout of high inflation, gold has made a run at its all-time high. Last March, it briefly topped $2,000/oz, and just a few weeks ago, it got as high as $1,950. The all-time high was set in August 2020, at over $2,064. 

The current high was notched in mid-2020, just as financial markets were taking off in the aftermath of the COVID-19 crash. That was when governments around the world unleashed monetary and fiscal bazookas to support economies reeling from the pandemic. 

The inflationary consequence of those government actions began to be felt around six months later.  

Gold investors in 2020 accurately anticipated the price pressures that were to come. But even though they were right, a lot of them didn’t benefit from that foresight. Prices for the metal today are trading roughly where they were in July 2020.  

On an inflation-adjusted basis, they’re back to where they were in April 2020, and about 26% below the inflation-adjusted record high from 2011.  

Those are the perils of being a gold investor today. Even if you’re right, you might not profit. 

Gold moves in mysterious ways. It has a knack for making sudden moves and then doing a whole lot of nothing for a long time. It’s also a global metal, influenced by demand vagaries in international markets, particularly in Asia.  

For some investors, that can be frustrating. For others, that can be a virtue if they’re looking for an uncorrelated asset to put within a broader, diversified portfolio. 

Investors who fit into the second bucket have been active recently. The SPDR Gold MiniShares Trust (GLDM), the cheaper, younger cousin of the SPDR Gold Trust (GLD), has picked up $414 million of inflows this year. 

Launched in 2018, GLDM is easily the cheapest U.S.-listed gold ETF, with only an 0.1% expense ratio. That compares to 0.4% for GLD and 0.15% for the Franklin Responsibly Sourced Gold ETF (FGLD), the next-cheapest ETF in the category. 

The choice of GLDM suggests that investors in the ETF are in it for the long haul. GLD remains the most liquid gold ETF by far, something that might appeal to large institutional investors or options traders with shorter time horizons.  

But for price-conscious, buy-and-hold ETF investors of any size, you can’t do better than GLDM. 

Today the fund has $5.7 billion in assets, making it the third-largest gold ETF, behind GLD’s $55.6 billion and the $27.2 billion for the iShares Gold Trust (IAU), which costs 0.25% per year. 

If other ETF categories that spawned cheaper clones of existing ETFs are any indication (IEMG and EEM being the most prominent example), then GLDM will likely continue to gather assets at the expense of other gold funds.  

Email Sumit Roy at [email protected] or follow him on Twitter @sumitroy2