:max_bytes(150000):strip_icc()/thinkstockphotos-461251551-5bfc34fe46e0fb00517daf60.jpg "Considering Gold ETFs After Recent Record Highs? Here Are 5 Key Factors to Weigh Before Investing.")
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Key Takeaways
- Gold prices have hit a series of record highs this year, leading experts to suggest that investors should consider increasing their exposure to the precious metal.
- Exchange-traded funds are a convenient option for investing in gold, though they have unique characteristics that should be evaluated before making an investment.
- Your investment objectives should guide your choice of ETF and how much you ultimately allocate.
With gold prices recently hitting all-time highs, gold exchange-traded funds (ETFs) are a convenient way for investors to get exposure to one of humanity’s oldest stores of value. They offer accessibility without the hassles of buying, storing and insuring physical bars.
But just because they’re easy doesn’t mean you shouldn’t do your homework. Different gold ETFs come with their own structural quirks, fees and trade-offs that can affect long-term performance.
If you’re thinking of adding one to your portfolio, here are five critical factors to consider:
1. Expense Ratio
ETFs charge an annual management fee, or expense ratio, that comes straight out of the fund’s performance. Gold ETF fees average around 0.66% (and range from as low as 0.10% to more than 1%) per year, as some specialized or actively managed products can charge more.
A lower fee is always better, all else equal—but that doesn’t mean you should choose the cheapest option every time. Some funds with slightly higher expenses might offer better liquidity, narrower bid-ask spreads, or more-efficient structures that keep taxes and tracking error low.
For investors with a long time horizon, small differences in fees will add up, so it’s important to weigh costs against the overall value proposition of each fund.
Tip
Aim to find a gold ETF with a competitive fee ratio, but don’t judge a fund based on cost alone.
2. How the ETF Is Backed (Physical vs. Futures)
Gold ETFs can take two general approaches to gaining exposure to gold: physical or futures. The structure matters a lot because it determines what you are technically buying when you purchase shares.
- Physical-backed ETFs: These funds actually own real gold bullion stored securely in vaults. The structure provides a very transparent and reliable way to track the spot price of gold. When the metal rises or falls, the ETF should rise or fall by an equivalent amount (minus fees and expenses).
- Futures-backed ETFs: These use futures contracts to achieve gold exposure without holding physical metal. Futures-based ETFs can be more complex and expensive to manage because of roll costs, contango and potentially wider bid-ask spreads. The structure can also create more-complex offerings, such as leveraged and inverse ETFs, which is why they may be better-suited for active traders.
3. Liquidity and Trading Volume
ETF liquidity is how easily investors can buy or sell shares at current prices. Gold ETFs with higher trading volumes tend to have smaller bid-ask spreads, meaning you’ll pay less in premiums when buying or accept smaller discounts when selling.
For active traders, liquidity is crucial for efficient trade execution. But even buy-and-hold investors should care about liquidity because it makes trading smoother if you need to make tactical moves or rebalance.
The following factors indicate ETF liquidity:
| Largest Gold ETFs by Assets Under Management (2025) | ||
|---|---|---|
| Ticker | Name | AUM ($Billions) |
| GLD | SPDR Gold Shares | $141.1 |
| IAU | iShares Gold Trust | 65.2 |
| SGOL | abrdn Physical Gold Shares | 7.1 |
| IAUM | iShares Gold Trust Micro | 5.6 |
| AAAU | Goldman Sachs Physical Gold ETF | 2.4 |
4. Tracking Error and Performance History
A gold ETF’s job is to mimic the spot price of gold as closely as possible. The difference between the ETF’s performance and the actual market return of gold is called tracking error. Expenses, management, and fund structure, particularly for futures-based ETFs, can all affect the extent of tracking error.
Some small error is normal and expected. But a high or erratic tracking error could point to hidden inefficiencies that could cost you over the long term.
Look at these criteria:
- ETF’s multi-year performance against gold
- Past performance during periods of market volatility
- Reasons for potential tracking drift (if any)
Important
Physical ETFs tend to have smaller tracking error than futures-based ETFs.
5. Your Investment Goals
The purpose gold serves in your portfolio should guide your choice of ETF and how much you ultimately allocate.
Gold can act as an inflation hedge, portfolio diversifier or safe-haven asset during periods of geopolitical, economic or market turmoil. The most important question is why you want exposure to gold in the first place.
Tip
A typical “core” allocation to gold, including gold ETFs, shouldn’t be more than 5% to 10% of a diversified portfolio.
Ask yourself:
- Are you looking for long-term hedging or short-term trading?
- Do you prefer basic exposure or more tactical/leveraged ETFs?
- How much volatility and risk are you comfortable with?
- Do you already have exposure to gold or other precious metals indirectly through mining company stocks, etc.?
