What You Need to Know About the Top 5 Gold ETFs

There are several ways to invest in gold. You can buy physical gold in the form of bars, coins, or even jewelry. You could also purchase shares in a gold mining company or a gold-focused exchange-traded fund (ETF).

Gold ETFs fall into two basic categories:

• Those that own physical gold.
• Those that own gold mining stocks.

Here's a closer look at the top gold ETF options.

What to look for in the best gold ETFs

Investors considering an ETF focused on gold should look for the following characteristics:

• Large size: The ETF should have at least $200 million of assets under management. That larger size makes the ETF less likely to fall prey to market manipulation or trade at a significant premium to its net asset value.
• Reasonable expense ratio: Look for an expense ratio below 1%. Any expense ratio over 1.5% is considered excessive.
• Non-leveraged ETFs: A leveraged ETF borrows money or uses derivatives such as options and futures contracts to magnify its returns. These carry much higher risk. Leverage in a down market can magnify losses.

With these criteria in mind, here are some of the best gold ETFs:

Top gold ETFs

The best gold ETFs are:

Here's a closer look at each of these top gold ETFs:

1. SPDR Gold Shares

The largest and most liquid gold ETF is the SPDR Gold Shares. It's the gold standard for investors seeking direct exposure to the price of the yellow metal. The ETF's sole assets are gold bullion, which it stores in secured vaults.

Investors pay a premium for this particular gold ETF. It has a higher expense ratio compared to other ETFs that own physical gold bullion. However, it's still relatively cheaper than the cost of shipping, insuring, and storing gold bars and coins, especially when factoring in its liquidity. Its large size makes it a favorite of institutional investors such as pension funds that use it to hedge against inflation and other risk factors.

2. iShares Gold Trust

The iShares Gold Trust is almost identical to the SPDR Gold Shares. That makes it another great way to invest directly in gold. It also boasts a lower expense ratio than its larger rival.

Owning shares in this ETF is a great proxy for owning physical gold without the hassle and expense of storing or insuring bars and coins. The ETF handles these items, storing its bullion in the London branch of JPMorgan Chase (NYSE:JPM). Overall, this gold ETF has done an excellent job of tracking the price of gold, with only a minor underperformance due to its expense ratio.  

3. VanEck Vectors Gold Miners ETF

The VanEck Vectors Gold Miners ETF is the largest ETF focused on holding shares of major gold stocks. That makes it the best gold ETF for those who want to invest in mining companies as a way to play the gold market.

Shares of mining companies can outperform the price of gold. That's because they can benefit from the dual catalysts of production growth and a rising gold price. However, owning mining stocks is riskier than investing directly in gold. That's because cost inflation and other factors can cause underperformance.

As of September 2021, this gold ETF held shares of more than 50 gold mining companies. Its top holdings included the largest gold mining companies in the world by market capitalization, led by the following five:

• Newmont (NYSE:NEM)
• Barrick Gold (NYSE:GOLD)
  
• Franco-Nevada (NYSE:FNV)
  
• Wheaton Precious Metals (NYSE:WPM) 
• Newcrest Mining (ASX:NCM)
  

These are some of the largest gold companies in the world. The market cap of the largest mining company on this list is $47 billion, and the market cap of the smallest company is $15.5 billion. Overall, these top five holdings make up more than 46% of this gold ETF's assets, led by Newmont at more than 15%. That gives investors greater exposure to the world's largest gold mining companies, making this ETF ideal for investors seeking quality over quantity.

4. VanEck Vectors Junior Gold Miners ETF

The VanEck Vectors Junior Gold Miners ETF offers the most upside potential. That's because it focuses on smaller mining companies, known as junior gold miners, some of which are still exploration-stage companies. These smaller miners could expand their production faster and deliver higher returns than their larger rivals. However, with that higher reward potential comes more risk. That's because they lack the scale of their larger rivals, so making a misstep such as cost overruns on a mine development could be costlier to investors.

The VanEck Vectors Junior Gold Miners ETF is reasonably large and has a relatively low expense ratio. This gold ETF has nearly 100 holdings. Its five largest are: 

• Pan American Silver(NASDAQ:PAAS)
• Yamana Gold (NYSE:AUY)
• Evolution Mining (ASX:EVN)
  
• Endeavour Mining (TSX:EDV)
  
• First Majestic Silver (NYSE:AG)

These mining companies are much smaller than most held by the VanEck Vectors Gold Miners ETF. The largest holding on this list has a market cap of $6.2 billion. Further, the five largest holdings of this ETF make up less than 25% of its assets. Because of that, investors have broad exposure to several up-and-coming gold and silver mining stocks.

5. SPDR Gold MiniShares Trust

The SPDR Gold MiniShares Trust is a lower-cost product launched by the same investment managers as the SPDR Gold Shares ETF. They created this ETF for cost-conscious retail investors so they didn't lose market share to rivals such as the iShares Gold Trust. They opted to create a new ETF rather than changing their highly successful (and lucrative) SPDR Gold Shares product favored by institutional investors. This gold ETF offers the same direct exposure to the price of gold since it also owns gold bullion, but at a lower cost.

That makes this ETF an ideal option for investors seeking the cheapest way to invest in gold without owning it directly. However, given its smaller size, this ETF has less liquidity than larger gold ETFs. This factor could impact pricing during periods of market volatility. However, thanks to its lower costs, it should do the best job of mirroring the price of gold over the long term since its ultra-low expense ratio won't have much impact on returns.

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Finding the best gold ETF for your portfolio

Gold ETFs allow investors to speculate on gold prices without buying physical gold. The benefit of owning a gold mining company ETF over a gold price ETF is that it can generate higher returns.

Gold miners can use the cash flow they earn from producing gold to expand their production, make dividend payments, and repurchase shares. Those investments and shareholder returns position gold mining companies to potentially deliver better total returns compared to the price gains of gold.