5 of the best gold ETFs

Gold has had a strong run through 2024, and for good reason.

The gold price is up 29.4% year-to-date at $2,661 as of 29 November. Gold prices spiked in late October before a sequence of fairly dramatic swings through November.

Investing in the precious metal has long been seen as a proactive hedge against high inflation and economic uncertainty, and there is plenty of that around at the moment.

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The rate of inflation, having previously fallen back to the Bank of England's 2% target, rose again in October. The UK economy is growing, but tax rises announced by chancellor Rachel Reeves in the Autumn Budget could hinder this over the medium term.

There is also plenty of uncertainty from tensions in the Middle East and the implications of Donald Trump's return to the White House having won November's US presidential election.

This has prompted cautious investors to reconsider how well their portfolios are protected against political and economic risks, pushing up the price of the yellow metal.

Upwards movements in the gold price indicate that investors, concerned by the events across the Atlantic and in Europe, are seeking the protection of safe haven assets as they try to protect their portfolios from political and economic fallouts.

As Dominic Frisby has explained, it’s important to understand the nuances of investing in gold in sterling terms as well as in US dollars, but the key principles remain the same – gold can help protect your portfolio returns.

As such, owning one or two of the best gold ETFs could help protect your portfolio returns, but we always recommend you hold just 5%-10% as “insurance” for your portfolio.

Dzmitry Lipski, head of funds research at interactive investor says, "The historic role of gold has been as a store of value during economic crisis. It is generally accepted that gold could also be used as an inflation hedge and, therefore, rising inflation is necessary for the cost of gold to increase.

"That's because gold is priced in US dollars, so when each dollar becomes less valuable it takes more of them to buy the same amount of gold.

"Conversely, low inflation and a strengthening US dollar should be seen as negative for gold prices."

How to add gold to your portfolio

So how should you add gold to your portfolio? One option is to stock up on jewellery or buy gold bullion, in the form of physical coins or bars. That will give you some nice shiny trinkets to hold and admire, but it can be expensive and there is the worry of storing them safely.

If you’re feeling adventurous, you could buy shares in gold miners. But these often don’t track the price of gold very closely, meaning you aren’t getting the best exposure, plus you need to worry about choosing the best stock and trading and platform fees. Mining is a very cyclical business that regularly fluctuates from boom to bust, so it can be very volatile.

Josh Saul, CEO of The Pure Gold Company says, "ETFs are easy to invest in and very liquid but they are one half of a transaction with a bank or investment vehicle, so they come with counterparty risk. Meanwhile, mining stocks are intrinsically linked to the operations and profitability of the company rather just than the gold price."

"At a time when people are worried about the strength or integrity of counterparties, physical gold bullion reduces that risk because it sits outside the banking system. It can also have tax benefits (VAT and CGT free depending on individual circumstances) which add to its value as an investment," Saul adds.

Gold ETFs: The simple way to invest in gold

An alternative is to invest in a gold exchange-traded fund (ETF). This is a fund that aims to track the price of gold.

The most straightforward gold ETFs are backed by physical gold – they buy gold bullion and store it in secure vaults. The most complicated ETFs use derivatives or options to “leverage” your investment and magnify gains. But they will also magnify losses, so be careful. Leveraged ETFs also tend to have higher fees than those that are backed by physical gold. So, if you’re buying gold to provide security, you should stay away from leveraged funds. When investing in ETFs, simplicity is the key.

A word on European gold ETFs. The EU does not allow ETFs that track a single commodity. Funds that do this are called “exchange-traded commodities” (ETCs). The difference between an ETF and an ETC is negligible, but ETFs backed by physical gold are ETCs, not ETFs.

As well as funds that track the price of gold, there are also funds that invest in gold mining stocks. But, as mentioned above, they do not track the price of gold very closely.

The beauty of physical gold ETFs is their simplicity and low cost. You can buy them from almost every broker or on a DIY investing platform and they can often be held in a SIPP or an ISA.

The best gold ETFs and ETCs

One of the biggest issues with gold is its environmental footprint. It requires a lot of energy to dig up, refine and store gold. There are also issues around potential labour abuses in the supply chain.

1. RMAP

The HANetf Royal Mint Responsibly Sourced Physical Gold (LSE: RMAP) tries to deal with these issues for investors. It only owns 100% post-2019 LBMA-approved gold bars. These are bars from refiners that "have been found, when originally tested, to meet the required standard for acceptability in the London bullion market."

The Mint is also building the world's first plant to recover gold from electronic waste, creating circular economy gold with a low environmental footprint. It is traded on the London Stock Exchange and charges just 0.25% per annum.

2. PHGP

Wisdom Tree Physical Gold (LSE:PHGP) is a physically backed gold ETC that comes in two flavours. It is denominated in sterling and is backed by physical gold held by HSBC Bank. It has an ongoing charge of 0.39%. WisdomTree Physical Gold Individual Securities ETC (LSE:PHAU) is essentially the same fund denominated in US dollars and carries the same ongoing charge of 0.39%.

3. SGBS

If you’d rather have your gold stored in Switzerland, the WisdomTree Physical Swiss Gold ETC (LSE: SGBS) stores its gold in secure vaults in Zurich on behalf of JPMorgan Chase Bank. The ongoing charge is 0.15%.

4. SGLN

The iShares Physical Gold ETC (LSE: SGLN) invests in physical gold kept by JPMorgan Chase Bank in London. The ongoing charge is 0.12%.

5. GDX

"Alternatively, investors may also want to consider investing in gold mining stocks via passive ETF such as the VanEck Gold Miners ETF (LSE:GDX)," adds Lipski.

"However, investors should be aware that physical gold and gold mining stocks are quite different asset classes. 

"While physical gold is better for inflation hedging and diversification, gold mining stocks provide operating leverage for investors comfortable with greater risk. As the gold price appreciates, the mining company's margins improve, so the potential return to investors likely goes up at a faster rate than the rise in gold. In this case, mining stocks become a better option than holding physical gold."

All of the funds mentioned above can be held in an ISA or a SIPP.