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Gold has rarely been out of the financial news headlines recently, thanks to an impressive price performance that skyrocketed it past $5,500 per ounce in late January. Gold’s upward trajectory has tempered somewhat since, but gold’s price is still hovering well above $5,100 per ounce currently, a level few investors imagined it would hit just a few years ago. Persistent geopolitical tensions, ongoing inflation concerns and other drivers have contributed to this rally — and to the renewed interest in precious metals as a portfolio hedge.
Gold’s price surge has also prompted questions about what gold assets to invest in, especially among investors who want to avoid the high prices that can come with owning it physically. That’s why some investors are considering assets like gold exchange-traded funds (ETFs) instead, which allow investors to track the metal’s price through the stock market. These funds can be purchased and sold just like shares of stock, making them an accessible entry point into the gold market.
But ease of access doesn’t necessarily mean that gold ETFs are the right choice for every investor. While gold ETFs can offer convenience and liquidity, they also come with limitations that are worth understanding. So are gold ETFs worth investing in right now? That’s what we’ll examine below.
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Are gold ETFs worth investing in right now?
Before you invest in a gold ETF now, here are some of the key factors to consider:
They offer easy access to the gold market
One of the biggest appeals of gold ETFs is their simplicity. Instead of dealing with precious metal dealers, storage solutions or insurance requirements, investors can purchase shares of a gold ETF through a brokerage account in mere seconds. That convenience has made gold ETFs a common starting point for people who want to add gold exposure without learning the complexities of the physical metals market.
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They offer liquidity and flexibility
Gold ETFs are also highly liquid. Because they trade throughout the day on major exchanges, investors can buy or sell gold ETF shares whenever the market is open. That flexibility makes it easier to adjust positions quickly, which is something that can be particularly helpful during periods of market volatility. Investors who need to sell their physical gold assets, on the other hand, will typically need to do so through a precious metal dealer or individual buyer.
They come with lower upfront investment requirements
Buying physical gold often requires investors to make a larger initial purchase, meaning it requires more capital. After all, even small gold bars or coins can cost hundreds or thousands of dollars, depending on the weight and purity. Gold ETFs remove that barrier by allowing investors to purchase shares that represent fractional exposure to the metal. That makes it possible to start investing with far less capital, which can be a big draw for investors with limited funds or those who are more cautious.
Investors don’t actually own gold, though
Gold ETFs do have an important limitation, though: Investors don’t own physical gold when they buy shares. Instead, they own shares in a fund that tracks the precious metal’s price, which is inherently different. For investors who view gold primarily as a hedge against systemic risk or currency instability, that distinction can matter.
Management fees can reduce returns
While gold ETFs remove some of the costs of owning physical gold, like storage and insurance, they typically charge annual management fees that are deducted from the fund’s value over time. While these fees are typically relatively small, they can still reduce long-term returns. For short-term exposure or portfolio diversification, those costs may be negligible — but long-term investors may want to weigh them carefully.
What other gold assets make sense in this market?
While gold ETFs offer a convenient way to invest in the metal, they’re far from the only option. Here are a few alternatives that may make sense in the current market.
- Physical gold bars: Gold bars remain one of the most direct ways to invest in the metal. Because gold bars typically carry lower premiums over the spot price than coins, they can be a cost-efficient option for investors who want to accumulate larger amounts of gold.
- Gold coins: Gold coins remain one of the most popular forms of physical gold ownership. Government-minted coins such as American Eagles or Canadian Maple Leafs are widely recognized, easy to buy and sell and are often highly liquid in the precious metals market.
- Gold mining stocks: Another alternative is investing in shares of companies that mine gold. When gold prices rise, mining companies will often benefit from improved profit margins, which can lead to strong stock performance.
- Gold mutual funds: Some investors choose actively managed mutual funds that invest in gold-related companies or a mix of gold assets. These funds can offer professional management and diversification within the precious metals sector.
The bottom line
Gold ETFs can be a useful tool for investors who want simple, liquid exposure to the metal. Still, they’re not the only way to invest in gold, and they may not fully replace the benefits of owning physical precious metals for some investors. For many people, the most balanced approach may involve combining different types of gold assets to create diversified exposure to the metal. As with any investment decision, though, the right strategy will depend heavily on factors like your goals, risk tolerance and time horizon.