Gold ETF - Overview & Comparisons Of Gold ETFs

When you begin to do research on the Gold ETF landscape you will see there are many different options to consider.  The first type of ETF we are going to cover are the ETFs that track the actual price of gold without the use of futures or leverage.  These ETFs which include GLD, IAU and SGOL have experienced explosive growth over the past few years as the price of gold rallied.  They were developed to provide investors with a more cost effective way to own gold as well as allow ownership in retirement accounts.  This has caused the investment demand for gold to grow considerably in the past 7 years.  If you are expecting a complete collapse of the current monetary system, then you should own gold bullion instead of a Gold ETF but if you are simply looking to diversify your investment portfolios and protect against a declining dollar they may be a good solution.

There may seem to be an overwhelming number of choices Once you determine Gold ETFs but as you will see in the following comparisons the only real choices are "Where" you want your gold to be stored and which company sponsor you prefer.  As far as actual performance, there isn't much difference between GLD, IAU and SGOL.

Important:  One item to note is that under U.S. tax law an investment in a Gold ETF is treated as if you invested in the underlying commodity which in this case would be considered a collectible. So capital gains would be calculated accordingly, please consult your tax advisor for more detailed information.

GLD (SPDR Gold Trust) is the most popular Gold ETF (in fact one of the most popular of all ETFs), so we will use this etf as the benchmark for comparisons. Since it's inception on November 18, 2004 the price performance of GLD has done a reasonably good job of reflecting the performance in the Gold market minus trust & gold storage expenses.

Each unit in GLD represents approximately 1/10 of an ounce of gold and the expense ratio for GLD is .40% (40 basis points) per year which seems to be the standard for the best unleveraged ETFs in this category.  Liquidity is not an issue as this is one of the most heavily traded ETFs in existence.

GLD is sponsored by World Gold Trust Services, LLC and marketed by State Street Global Markets, LLC.  The gold is held by custodians (in New York & London) on behalf of the trust and gold is only sold on an as needed basis to cover redemptions and operating expenses. The fund has been criticized for it's complex nature and critics have compared it to a Mortgage Backed Security. Most criticism centers around transparency of the gold holdings and the ability of small investors to take delivery of the actual gold in the case of a major financial crisis.

You can see by the monthly chart below that GLD has spent most of it's life in a bull market (tracking the bull market in gold) as measured by the 20 month simple moving average.

GLD Performance Since Inception

 
Monthly chart beginning on GLD inception date.   See a current GLD Price Chart

IAU - iShares Gold ETF is from a performance standpoint nearly identical to GLD.  It began trading 2 months after GLD on January 21, 2005 but has remained much smaller on a net asset basis than it's larger competitor.  Gold inventory is audited twice per year and the gold is held by custodians and is identified on the custodian's books as property of the trust. The physical gold is held by the custodian in vaults in the vicinity of New York, Toronto, London and other locations.

IAU is part of Blackrock's iShare family and they have spent the past year trying to differentiate this ETF from GLD.  The first step they took was doing a 10 for 1 stock split so it now represents approximately 1/100th of an ounce of gold and thus trades at a much lower price.  If you prefer to purchase 100 share lots of stock it's much more afforable to trade IAU.  For large institutional clients it makes less of a difference, in fact having to by 10x as many shares may actually be a disadvantage but that may be why BlackRock made the second change.

The second change BlackRock has initiated to spur investor demand was dropping the annual expense ratio from 40 basis points to 25 basis points.  This has lead to some large investors to move toward this ETF.

In addition to the share price split and drop in fees BlackRock has also reduced the potential counterparty risk by moving to 100% gold allocation on a daily basis.  The custodian is JP Morgan Chase and gold is held in 3 diverse locations New York, Toronto and London.

As you can see by the chart below the performance of IAU since inception has been virtually identical when compared to GLD.

IAU VS GLD Since Inception

Chart is monthly bar chart since the inception of IAU.  See a current IAU Price Chart

SGOL - Physical Swiss Gold Shares came late to the game starting 09/09/2009 and focused on creating a Gold ETF with greater transparency and attempting to eliminate security issues. The custodian is JP Morgan Chase (the same as IAU) and the physical gold is held in Zurich Switzerland (long considered a political safehaven) on behalf of the trust. According to the prospectus, each gold bar is properly segregated, recorded and the serial number is published daily on their web site. It seems they have gone the extra mile to address the transparency issue, there probably isn't much more that could be done without actually delivering the gold to the end customer.

Each SGOL share represents approximately 1/10th ounce of gold and the expense ratio is .39% (39 basis points) which is 1 basis point lower than GLD but 14 points higher than IAU.

At this point SGOL is the smallest of the 3 Gold ETFs covered on this page and has the lightest trading volume but it still has plenty of liquidity for trading or investing. 

As you can see on the following chart the performance of SGOL has mirrored that of GLD.   The primary reason an investor would choose SGOL over the others is if you agree there is a higher level of transparency or if you feel more secure having your gold stored in Switzerland.

SGOL VS GLD Since Inception

 
Chart begins on the first trading day of SGOL.  See a current SGOL price chart.
 

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