As markets enter a potentially turbulent period, it’s a good time to consider increasing your allocation to gold, and gold ETFs are one of the most efficient ways of doing so.
Of the various ways to invest in gold, or at least gain exposure to its price movements, gold ETFs have several important advantages, especially for individual investors.
The gold price has hit new highs early in 2025, up 39.4% over the past 12 months, with gold now trading at over $2,820 per troy ounce. Positive capital flows into gold ETFs during December have been one of the drivers for these gold price gains, but the macroeconomic backdrop is also supportive of gold.
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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.
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.
Donald Trump’s return to the White House has also put global markets on high alert. Trump’s tariffs – even if those against Canada and Mexico were short-lived – is a potential inflationary headwind for the global economy.
“Persistent geopolitical and economic uncertainties, particularly around tariffs, continue to support gold's appeal as a safe-haven asset,” says Hector McNeil, co-founder and co-CEO of HANetf.
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 as investors, concerned by the events across the Atlantic and in Europe, seek the protection of safe haven assets.
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."
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.
How to add gold to your portfolio
So how can 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.
You could also 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.
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.
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 than just the gold price."
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
1. RMAP
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.
The HANetf Royal Mint Responsibly Sourced Physical Gold (LON: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 (LON: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 (LON: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 (LON: 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 (LON: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 (LON: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."
The funds mentioned above can be held in an ISA or a SIPP.
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