9 Insights on How to Invest in Gold ETFs

Gaining exposure to the gold market doesn't have to involve purchasing and storing physical gold. That's exactly what gold ETFs are for. However, investing without understanding them first can easily backfire.

There are many factors to consider when choosing which fund to invest in, and whether you want to invest in gold ETFs at all. This article aims to equip traders with the necessary knowledge that could help them make the right choice for their trading account.

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What Are Gold ETFs?

» Master the fundamental terms and concepts of ETFs

Gold ETFs vs Physical Gold

Historical Growth of Gold ETFs

Gold price chart from September '22 to July '24



Due to global political uncertainty, gold ETFs have seen significant growth and popularity in recent years.

According to the World Gold Council, in May 2024, global gold ETF holdings rose to 3,088 tons, driven by inflows and a higher gold price. This resulted in a 2% increase in total assets under management (AUM), which rose to $234 billion during the month.

Moreover, in the last 2 years alone, gold has had a price increase of over 40%, from $1,710 per ounce in 2022, to over $2,400 in July 2024. 

» Learn how geopolitical events influence market volatility

9 Insights to Keep in Mind When Investing in Gold ETFs

1. Mitigate Market Volatility

All markets are subject to volatility, even relatively stable instrument classes like precious metals.

Gold ETFs alone don’t offer the same diversification benefits as a broader asset mix like index funds (e.g. the S&P 500). Including bonds, equities, and real estate alongside gold ETFs could help balance these risks.

Some investors use dollar-cost averaging to invest a fixed amount regularly. This strategy could reduce the impact of short-term volatility and lower the average cost of investments over time.

Some investors also use CFDs (contracts-for-difference) to hedge against volatility, though this could introduce additional risks.

» Find out which one is right for you: CFDs vs. ETFs

2. Review Economic Factors

Stay informed about macroeconomic indicators like inflation rates, interest rates, and currency strength. All these could significantly influence gold prices. Regularly review economic forecasts with economic calendars and reports from reputable sources to make informed decisions.

3. Understand Liquidity Issues

Opt for well-established gold ETFs with high trading volumes to ensure liquidity.

High liquidity could allow for easier buying and selling of ETF shares without significantly impacting the price. This is crucial for maintaining flexibility in the investment plan. Low liquidity could make it difficult to sell.

Additionally, avoiding trading during volatile market conditions could minimize liquidity risks. CFDs also offer a liquidity advantage, as they could be quickly bought or sold.

» Make sure to be aware of these risks of investing in ETFs

4. Tax Implications

Before investing, understand the tax treatment of gold ETFs in your jurisdiction. In the US, gold ETFs might be taxed as collectibles, which means higher capital gains rates (though comparatively lower than mutual funds), while Europeans may face slightly harsher tax implications.

To help minimize tax liabilities, traders might want to consider consulting a tax advisor to explore tax-efficient plans, such as holding gold ETFs in tax-advantaged accounts.

5. Consider Regulatory & Political Risks

Stay informed about regulatory and political changes affecting gold prices and ETFs. Look for ways to mitigate risks from regulatory shifts and try to invest in ETFs that adhere to strict standards.

» Solidify your portfolio with these advanced ETF trading strategies

6. Storage & Insurance Costs

Gold ETFs eliminate storage and insurance costs compared to physical gold, but that doesn't mean they don't have underlying fees. Review the ETF's expense ratio and other costs to ensure they are reasonable.

Lower expense ratios might boost long-term potential returns by reducing management costs. Typically, gold ETFs have expense ratios between 0.1% and 0.5%.

7. Counterparty Risks and Underlying Asset Backing

Some gold ETFs may carry counterparty risks if they use derivatives or other financial instruments. These risks arise from the potential default of the other party, which could affect the ETF’s performance.

Therefore, it’s important to verify that the considered ETF is backed by physical gold rather than derivatives or futures contracts.

» Pay attention to these differences between CFD and futures trading

8. Ensure There Is a Minimal Tracking Error

When investing in a gold ETF, check that it has a minimal tracking error. This means its performance closely matches the price of physical gold. A minimal tracking error could ensure the ETF accurately reflects gold price movements.

» Learn more about price and tracking in our guide to price-weighted indices

9. Market Sentiment and Supply & Demand

Market sentiment could greatly affect gold prices, causing quick shifts during geopolitical tensions. For example, in April 2024, gold jumped 1% within hours following Iran's missile strike on Israel due to fears of escalation.

Also, traders might want to consider global demand and supply factors for a fuller understanding of gold price movements. This includes mining production and central bank policies.

» Find out how to use SQQQ ETFs in trading

3 Examples of Gold ETFs

1. SPDR Gold Trust (GLD)



2. iShares Gold Trust (IAU)



3. Aberdeen Standard Physical Gold Shares ETF (SGOL)



Future Predictions for Gold and Gold ETFs

Inflation rate from June '04 to June '24



Unemployment rate from July '22 to May '24



With ongoing geopolitical conflicts, high inflation, and rising unemployment, gold continues to be considered a safe-haven for investors. Central banks might keep increasing their gold reserves and persistent geopolitical tensions are expected to support gold prices. As a result, gold ETFs could remain attractive.

Gold ETFs—Gold Market Exposure With Half the Hassle

Gold ETFs could be an attractive way to trade with the gold CFDs market without having to invest large amounts of capital or purchase physical ownership of the metal. However, not paying mind to factors such as tracking issues and storage costs could easily backfire, so one should always remember to do their due diligence before investing any of their funds.

» See our full list of CFDs on indices