Gold ETF Investing: A Beginners Guide
- We present an overview into gold ETF investing
- Find out how they work and what your best options are
- Compare gold ETFs with physical gold
- Investigate any tax implications with gold ETFs
- Decide for yourself: is investing in gold ETFs a good idea?
5 Min read | Invest
An Introduction: What Is Gold ETF Investing?
Gold ETF investing involves purchasing exchange-traded funds that track the price of physical gold, giving you exposure to gold prices without owning physical metal. These funds trade on stock exchanges like regular stocks during market hours and typically hold physical gold bullion in secure vaults.
As of 2025, gold ETFs have become increasingly popular, with $38 billion in inflows into commodities-focused ETF categories year-to-date. Gold prices reached an all-time high of $4,381.58 per ounce in October 2025, with current prices trading around $4,200, representing a 58.81% year-over-year gain.
This comprehensive guide covers what gold ETF investing is, how to get started, and whether it's a good investment strategy for your portfolio.
Key Facts About Gold ETF Investing
Gold ETFs offer instant liquidity with minimal bid-ask spreads of 0.01–0.03% compared to physical gold's 1–3% dealer markups, allowing you to buy and sell during market hours without negotiating with dealers or paying hefty premiums.
Low-cost ETFs like GLDM (0.10% expense ratio) and IAUM (0.09% expense ratio) significantly outperform higher-fee options like GLD (0.40%) over time due to compounding costs, potentially saving thousands of dollars on a $10,000 investment over a decade.
Gold provides exceptional diversification with near-zero correlation to stocks (0.01) and bonds (0.04), contributing over 20% of portfolio diversification benefits despite representing only 4.5% of allocations.
Gold ETFs are taxed as collectibles with long-term capital gains rates up to 28% versus 15–20% for traditional investments, creating a significant tax disadvantage that makes holding them in IRAs particularly attractive.
Central banks purchased a record 900+ tonnes of gold in 2025, signaling strong structural demand that supports current elevated price levels and suggests continued institutional confidence in gold.
Most financial advisors recommend 5–15% portfolio allocation to gold for diversification, with conservative investors at 5–10% and more aggressive allocations up to 15% depending on economic outlook and risk tolerance.
How Do Gold ETFs Work?
Understanding the mechanics behind gold ETFs helps you appreciate what you're actually buying. Here's how these funds operate:
Creation and Redemption Process
- Authorized participants (large financial institutions like JPMorgan and Goldman Sachs) create and redeem shares by exchanging physical gold bullion with the fund. This mechanism keeps the ETF price closely aligned with the underlying gold spot price, typically within 0.01–0.03% of net asset value.
Physical Gold Storage
- Each share represents fractional ownership of physical gold stored in secure vaults, typically LBMA-approved facilities. For example, one share of GLD represents approximately one-tenth of an ounce of gold. The custodians hold the actual metal on behalf of all shareholders.
Price Tracking
- Most gold ETFs track the LBMA Gold Price PM or spot gold prices with minimal tracking error. Unlike mining stocks, gold ETFs move directly with gold prices and have a beta of approximately 0.3 (minimal market correlation) compared to 0.9 for mining stocks.
Trading Mechanics
- ETFs trade continuously during market hours (9:30 AM–4:00 PM ET) with real-time pricing, unlike physical gold which requires dealer negotiation. You cannot directly redeem ETF shares for physical gold - only authorized participants can do this - which is a key difference from owning physical bullion.
Scale and Assets
- The largest gold ETFs like GLD and IAU each hold over $137 billion in assets under management, making them among the largest ETFs in the world and ensuring deep liquidity for investors of all sizes.
Best Gold ETFs To Consider In 2025
Choosing the right gold ETF depends on your priorities: cost minimization for long-term holders or maximum liquidity for active traders.
We have a dedicated article: Best Gold ETF for 2025
We recommend taking a look at our article for a deep dive into the best options available to you. For now, here's a quick comparison table of the top options available to U.S. investors.
| ETF | Ticker | AUM | Expense Ratio | 1-Year Return | Best For |
|---|---|---|---|---|---|
| SPDR Gold MiniShares | GLDM | $23.1B | 0.10% | 54.8% | Long-term buy-and-hold |
| iShares Gold Trust Micro | IAUM | $5.5B | 0.09% | 55.2% | Cost-conscious investors |
| SPDR Gold Shares | GLD | $137B | 0.40% | 54.5% | Active traders needing liquidity |
| iShares Gold Trust | IAU | $137B | 0.25% | 54.7% | Middle-ground option |
| Goldman Sachs Physical Gold | AAAU | $2.3B | 0.18% | 54.9% | Competitive mid-tier choice |
| VanEck Merk Gold | OUNZ | $500M | 0.25% | 55.67% | Physical delivery option |
| Franklin Responsibly Sourced Gold | FGDL | $350M | 0.15% | 55.50% | ESG-focused investors |
How To Invest In Gold ETFs: Step-By-Step Guide
Getting started with gold ETF investing is straightforward. Here's exactly how to purchase your first shares and build a position over time.
Open A Brokerage Account
You’ll need a brokerage account to buy gold ETFs, and one of the easiest places to start is eToro, a beginner-friendly platform that lets you trade gold ETFs with zero commission fees and a simple, fast signup process. You can open an account in minutes using your basic details and link your bank for deposits.
Other well-known brokers like Fidelity, Charles Schwab, and Vanguard offer gold ETF access too, but eToro stands out for its smooth interface, fractional investing, and social-style features that help new investors learn by watching real strategies in action.
The choice is up to you! We have a fantastic comparison tool available to help you with your decision.
Fund Your Account
Transfer money into your brokerage account using bank transfer (ACH), wire transfer, or check.
Bank transfers are free but take 1–3 business days to settle. Wire transfers cost $20–$30 but settle same-day if you need immediate access.
Most brokers allow you to place orders while funds are in transit, but you cannot sell positions until funds fully settle to avoid good faith violations.
Research And Select Your Gold ETF
Compare expense ratios, liquidity (average daily volume), and tracking accuracy before choosing. For most investors prioritizing low costs, we recommend GLDM (0.10% expense ratio) or IAUM (0.09% expense ratio).
Active traders should consider GLD for its superior liquidity and options availability despite the 0.40% expense ratio.
Check out our analysis on the Best Gold ETFs for more details!
Determine Your Allocation
Most financial advisors recommend 5–15% of your portfolio in gold. Conservative investors typically allocate 5–10%, while more aggressive allocations reach 15%.
Your specific allocation depends on your risk tolerance, investment timeline, existing diversification, and economic outlook. Check out our Ask Financer article on 'How Many ETF Shares Should I Buy' for more advice!
Place Your Order
You have two order types:
- Market orders execute immediately at the current price.
- Limit orders execute only at your specified price or better.
We recommend limit orders to control your execution price, especially for less liquid ETFs. For example, if GLDM trades at $62.50, you might place a limit order at $62.48 to avoid paying the ask price. For highly liquid ETFs like GLD during market hours, market orders work fine due to tight spreads.
Monitor And Rebalance
We recommend checking your allocation quarterly or semi-annually and rebalance when gold drifts 2–3% from your target.
If gold appreciates significantly and grows from 10% to 13% of your portfolio, sell some shares to return to 10%. This disciplined approach forces you to sell high and buy low. Consider dollar-cost averaging for new positions: investing fixed amounts monthly (say $500) reduces timing risk and smooths out price volatility.
Gold ETFs vs. Physical Gold: What is the Difference?
The choice between gold ETFs and physical gold represents a fundamental decision about convenience versus control. Here's a table showing how they compare across the dimensions that matter most:
| Feature | Gold ETFs | Physical Gold |
|---|---|---|
| Liquidity | Instant trading during market hours (9:30 AM–4:00 PM ET) | Requires dealer negotiation; can take days to sell |
| Transaction Costs | 0.01–0.03% bid-ask spreads | 1–3% dealer markups plus premiums |
| Annual Expenses | 0.09–0.40% expense ratios | $50–$200+ for storage and insurance |
| Minimum Investment | As low as $50 (fractional shares) | $2,000+ for one ounce of gold |
| Storage Requirements | None - held by custodian | Safe deposit box or home safe needed |
| Counterparty Risk | Depends on custodian and fund structure | None - you own the metal outright |
| Authentication Concerns | None - verified by custodian | Must verify authenticity when buying/selling |
| Theft/Loss Risk | Protected by custodian insurance | High - vulnerable to theft, fire, or loss |
| Crisis Access | Requires functioning electronic markets | Accessible during financial system disruptions |
| Tax Treatment | 28% collectibles rate (long-term gains) | 28% collectibles rate (long-term gains) |
| Portfolio Integration | Seamless with other investments | Separate from investment accounts |
| Psychological Comfort | Digital ownership only | Tangible asset you can hold |
| Best For | Convenience, liquidity, cost efficiency | Crisis protection, tangible ownership |
Which Should You Choose?
The choice between gold ETFs and physical gold comes down to convenience versus control. Gold ETFs offer instant liquidity - you can buy or sell shares in seconds during market hours with minimal spreads (0.01–0.03%), while physical gold requires dealer negotiation with 1–3% markups.
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ETFs eliminate storage headaches, insurance costs, and security concerns since institutional custodians handle everything. However, you can't redeem shares for actual metal (only authorized participants can).
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Physical gold gives you direct ownership and complete control, making it ideal for those who want tangible assets during extreme crises, but you'll pay ongoing storage and insurance fees plus face authentication risks when selling.
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Is Investing In Gold ETFs A Good Idea? Pros And Cons
Let's weigh out the advantages and disadvantages of making an investment in gold ETFs:
Exceptional diversification: Gold has near-zero correlation with stocks (0.01) and bonds (0.04), contributing over 20% of portfolio diversification benefits despite representing only 4.5% of allocations. This means when stocks crash, gold often holds steady or appreciates, protecting your overall portfolio.
Inflation hedge potential: Gold has historically maintained purchasing power over long periods. While not a perfect short-term inflation hedge, gold preserves wealth across decades as paper currencies lose value through monetary expansion.
Crisis protection: Gold typically appreciates during financial stress - it rose during the 2008 crisis while stocks crashed 50%+, and hit records during COVID-19. When investors panic, they flee to gold as a safe haven asset.
Liquidity and convenience: Trade instantly during market hours with minimal spreads (0.01–0.03%), no storage hassles, no authentication concerns, and no security risks. You can sell $100,000 of gold ETF shares in seconds with a few clicks.
Low costs: Expense ratios as low as 0.09% with no storage or insurance fees. Over decades, this cost advantage compounds significantly compared to physical gold's ongoing storage and insurance expenses.
Structural demand support: Central banks purchased 900+ tonnes in 2025, continuing a multi-year trend of 1,000+ tonnes annually. This institutional buying creates a price floor and signals confidence in gold's role as a reserve asset.
Professional custody: Institutional-grade vault storage in LBMA-approved facilities eliminates personal security concerns. You don't need a home safe or worry about theft, and the gold is insured by custodians.
No income: Gold produces no dividends or interest, relying solely on price appreciation. While stocks generate dividends and bonds pay interest, gold just sits there. Your only return comes from selling at a higher price.
Tax disadvantage: 28% maximum long-term capital gains rate versus 15–20% for stocks. This 8–13 percentage point penalty significantly reduces after-tax returns for high-income investors in taxable accounts.
Counterparty risk: Unlike physical gold, ETF investors depend on custodians, trustees, and the financial system functioning. During extreme crises, there's theoretical risk that you cannot access your gold or convert shares to physical metal.
Volatility: 14.2% standard deviation means significant short-term price swings. Gold can decline 15–20% in months during strong stock markets or when the Federal Reserve aggressively raises interest rates.
Opportunity cost: During strong stock markets (like 2013–2021), gold may underperform significantly. Money in gold is money not in stocks, which have higher long-term expected returns.
No direct redemption: Retail investors cannot exchange shares for physical metal - only authorized participants can. If you want actual gold bars, you must sell ETF shares and buy physical gold separately, paying premiums and transaction costs.
Mixed inflation-hedge record: Gold doesn't always track inflation closely, especially when the Fed actively raises rates. During the 1980s and 1990s, gold declined in real terms despite ongoing inflation.
Tax Implications Of Gold ETF Investing
Understanding gold ETF taxation is essential for accurate return calculations and optimal account placement. The tax treatment differs significantly from traditional stock ETFs.
Collectibles Tax Classification
- The IRS classifies gold ETFs as collectibles, creating unique tax treatment. Long-term capital gains (holdings over 1 year) are taxed at a maximum rate of 28%, compared to 15–20% for traditional stock ETFs. This represents a significant disadvantage for high-income investors.
Short-Term Capital Gains
- Short-term capital gains (holdings under 1 year) are taxed as ordinary income at rates up to 37%. For traders holding gold ETFs less than a year, there's no difference from stock taxation - both use ordinary income rates.
Net Investment Income Tax
- High-income earners (over $200,000 single, $250,000 married) face an additional 3.8% net investment income tax (NIIT) on top of capital gains rates. This pushes the effective long-term rate to 31.8% for gold ETFs versus 18.8% for stock ETFs - a 13-percentage-point penalty.
Gold Futures ETFs: A Tax Alternative
- Gold futures ETFs like DGL receive more favorable 60/40 blended tax treatment: 60% taxed at long-term 20% rate, 40% at short-term 37% rate. This yields approximately 26.8% effective taxation regardless of holding period - potentially superior for shorter-term traders, though futures ETFs have tracking differences from physical gold ETFs.
Retirement Account Treatment
- Within traditional IRAs, gold ETF gains grow tax-deferred and withdrawals are taxed as ordinary income regardless of the collectibles designation. Within Roth IRAs, qualified withdrawals are completely tax-free. This makes retirement accounts the optimal location for gold ETF holdings.
Self-Directed IRA Physical Gold
- Investors can hold physical gold in self-directed IRAs but must use specialized custodians charging $100–$300+ annually. Required minimum distributions become complicated when you own physical metal rather than liquid securities.
Gold ETFs vs. Gold Mining Stocks: What is the Difference?
Gold ETFs and gold mining stocks sound similar but behave completely differently. Understanding this distinction is critical for proper portfolio construction.
Correlation Differences
- Gold mining stocks exhibit 0.8–0.9 beta correlation with equity markets, meaning they move with stocks. Gold ETFs have approximately 0.3 beta - minimal market correlation. When the stock market crashes, mining stocks typically fall alongside it, while gold ETFs often appreciate or hold steady.
Volatility Comparison
- GDX (Gold Miners ETF) has 34.34% standard deviation versus GLD's 14.2% - mining stocks are more than twice as volatile. This higher volatility cuts both ways: bigger gains during rallies but steeper losses during downturns.
Historical Performance Divergence
- From 2013–2023, gold prices rose 55% while GDX gained only 12%. Over the past 5 years, gold rose 95% but Newmont Mining returned just +1.6% and Barrick Gold returned -11%. Mining stocks frequently underperform the metal itself due to operational factors beyond gold prices: labor costs, fuel prices, management competence, political risk, and production challenges.
When Each Makes Sense
Mining stocks can provide leveraged exposure during gold bull markets and pay dividends. However, gold ETFs are better for strategic portfolio insurance, lower volatility, pure gold price exposure, and long-term diversification benefits. Most investors seeking gold exposure should choose ETFs for core holdings.
FAQs
How Much Should I Invest In Gold ETFs?
Most financial advisors recommend 5–15% of portfolio allocation to gold. Conservative investors typically allocate 5–10%, while more aggressive allocations reach 15%. Your specific allocation depends on your risk tolerance, investment timeline, existing diversification, and economic outlook - factors like age, income stability, and other holdings all matter. Allocations above 20% may reduce overall portfolio efficiency because gold's long-term expected returns are lower than stocks.
Can I Lose Money Investing In Gold ETFs?
Yes, gold prices fluctuate significantly - GLD's maximum drawdown in March 2020 was 14.8%. Gold can underperform during strong stock markets and when the Federal Reserve raises rates aggressively, as happened in 2013–2015 when gold fell 45% from its 2011 peak. However, long-term (25+ year) returns have been positive at approximately 9–10% annualized. Gold is volatile in the short term but serves a strategic long-term diversification role - it's portfolio insurance, not a get-rich-quick investment.
Are Gold ETFs Better Than Physical Gold?
It depends on your priorities. Gold ETFs offer superior liquidity (trade instantly with 0.01–0.03% spreads), lower costs (no $50–$200 annual storage fees or 0.5–1% insurance), and convenience (buy/sell through any brokerage). Physical gold eliminates counterparty risk (you own the metal outright), provides tangible ownership, and works during financial system disruptions. For most retail investors prioritizing convenience and cost-efficiency, ETFs are better. Physical gold suits those prioritizing security during extreme crises despite accepting illiquidity and ongoing storage costs. Some sophisticated investors use a hybrid approach: 5% physical gold for emergencies and 10% in ETFs for liquidity.
How Are Gold ETFs Taxed?
Gold ETFs are taxed as collectibles by the IRS. Long-term capital gains (holdings over 1 year) face a maximum 28% rate versus 15–20% for stocks - a significant disadvantage. Short-term gains (under 1 year) are taxed as ordinary income up to 37%, same as stocks. High-income earners pay an additional 3.8% net investment income tax (NIIT) on top of capital gains rates, pushing effective long-term taxation to 31.8%. In retirement accounts (traditional IRAs), gains grow tax-deferred and withdrawals are taxed as ordinary income regardless of collectibles designation. In Roth IRAs, qualified withdrawals are completely tax-free, eliminating the tax disadvantage entirely - making retirement accounts the preferred location for gold ETF holdings.
Can I Hold Gold ETFs In My IRA Or 401(k)?
Yes, gold ETFs can be held in traditional IRAs, Roth IRAs, and many 401(k) plans if your plan allows. This is often preferable because gains grow tax-deferred (traditional IRA) or tax-free (Roth IRA), avoiding the 28% collectibles tax rate that applies in taxable accounts. Most major brokerage firms (Fidelity, Schwab, Vanguard) allow gold ETF purchases within IRAs with no special requirements - you simply buy them like any other ETF. Note that physical gold requires a self-directed IRA with a specialized custodian charging $100–$300+ annually, making ETFs the simpler and cheaper option for retirement accounts.
Do Gold ETFs Pay Dividends?
No, gold ETFs do not pay dividends because gold itself produces no income - it's a non-yielding asset. You profit only from price appreciation when you sell shares at a higher price than you paid. This is a key consideration versus dividend-paying stocks (which might yield 2–4% annually) or interest-bearing bonds (yielding 4–5%). Gold's value comes from diversification benefits, crisis protection, and long-term purchasing power preservation, not income generation. If you need portfolio income, combine gold ETFs (for diversification) with dividend stocks or bonds (for cash flow).
Final Thoughts On Gold ETF Investing
Gold ETF investing offers a modern, accessible way to add precious metal exposure to your portfolio without the hassles of physical ownership. With institutional-grade custody, daily liquidity, and costs as low as 0.09% annually, these funds make gold investing straightforward for beginners and experienced investors alike.
Remember to focus on strategic allocation (typically 5–15% of your portfolio) rather than chasing recent performance, prioritize tax-advantaged accounts when possible, and maintain discipline through regular rebalancing. Whether you choose low-cost options like GLDM or IAUM, or prefer the deep liquidity of GLD, you now have the knowledge to make informed decisions.
Gold's diversification benefits and crisis-protection properties make it a valuable component of a well-rounded investment strategy. Start small, invest consistently, and let gold ETFs work as your portfolio's insurance policy against uncertainty.
Financer offers comparison tools and educational resources to support your investment journey. Explore our broker comparisons to find the right platform for your gold ETF purchases.
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