2024: Complete Guide to Investing in Gold ETFs - Analysis of the Best Market Options

The Rise of Gold ETFs in 2024

Global markets face an unprecedented landscape of uncertainty. Geopolitical tensions in Ukraine and Gaza, along with the possibility of Donald Trump returning to the U.S. presidency, have generated considerable volatility. In this scenario, gold ETFs emerge as an attractive refuge for investors seeking to diversify their portfolios.

Interest in gold ETFs has renewed significantly this year. The combination of geopolitical instability and the outlook for lower interest rates has catalyzed this movement. In fact, there is a well-documented inverse relationship between the gold price and the strength of the U.S. dollar, the international quote currency for the precious metal.

As global monetary authorities consider rate cuts, the expected depreciation of the dollar will likely lower the international price of gold, attracting greater demand. Simultaneously, lower rates would reduce the appeal of fixed-income assets, favoring options such as gold ETFs, cryptocurrencies, and stocks.

Understanding Gold ETFs: Mechanism and Advantages

Unlike directly owning physical gold, gold ETFs function as investment vehicles that track the price of the precious metal directly or indirectly. Physically backed gold ETFs hold real bars in certified vaults, where each share represents a fraction of ownership of the stored metal.

This structure eliminates security risks and administrative complications associated with keeping physical gold at home or in safes. Conversely, there are gold ETFs that invest in mining company stocks, although these instruments carry additional risks related to the specific financial results of these corporations.

Main advantages of gold ETFs include:

• High liquidity: Easily bought and sold throughout the trading session via common shares
• Lower fees: Generally lower than actively managed gold mutual funds
• Accessibility: Affordable share prices allowing participation with little initial capital
• Two management modes: Physical backing (lower risk) or synthetic via derivatives (lower fees but counterparty risk)

Recent Dynamics of the Gold Market

Capital Flows: A Contradictory Outlook

According to figures from the World Gold Council, gold ETFs have recorded net capital outflows over the past nine months, despite the strengthening of the metal’s price. In February 2024, $2.9 trillion was withdrawn globally, with North America accounting for $2.4 trillion. Europe experienced outflows of $0.7 trillion, while Asia saw inflows of $0.2 trillion.

However, this dynamic has not negatively affected the gold price, which continues to recover since October 2022. Many investors apparently took profits to reposition into tech assets or Bitcoin, which offer higher potential returns in the short term.

Central Banks Reinforce Their Positions

A 2023 survey by the World Gold Council of 57 central banks worldwide revealed that 71% expected to increase their gold reserves in the next 12 months, a 10 percentage point increase from 2022. This trend reflects institutional confidence in gold as a safe store of value.

The top ten holders of gold reserves include the United States, Germany, Italy, France, Russia, China, Switzerland, India, and the Netherlands. Simultaneously, we observe a gradual decline in the U.S. dollar’s weight in central banks’ currency portfolios, a phenomenon that enhances gold’s strategic appeal.

Diversified and Stable Global Demand

Gold demand comes from four main sources that adapt to the economic cycle, generating a very stable profile. In Q4 2023, global demand reached 1,149.8 tons:

• Jewelry: 581.5 tons
• Investment: 258.3 tons (with physical gold ETFs as main players)
• Central banks: 229.4 tons
• Technology: 80.6 tons

Over the past 14 years, demand has rarely fallen below 1,000 tons, demonstrating the stability of the underlying market.

Is It Wise to Invest in Gold ETFs in 2024?

Factors to Consider

Deciding to incorporate gold ETFs into your portfolio fundamentally depends on your investment goals and risk tolerance. For conservative or moderate-risk investors, gold ETFs offer multiple strategic benefits:

Portfolio diversification: Gold acts as a volatility buffer, mitigating losses when other assets experience turbulence. Historically, gold has proven to be one of the most resilient assets during global market downturns.

Inflation hedge: Historical data confirms that gold maintains its value relatively well during periods of high inflation. Although current inflation is decreasing, central banks remain cautious in rate reductions, making gold a valid hedge against inflation resurgences.

Volatility as opportunity: Gold is often considered a safe haven asset whose price rises when stock markets undergo significant corrections.

The Global Debt Factor

Global debt levels have reached concerning heights since the 2008-2009 financial crisis. The U.S. maintains a public debt-to-GDP ratio of 129%, while Japan leads worldwide with 263.9%. These unsustainable debt levels raise fundamental questions about the long-term architecture of the global financial system.

Jerome Powell, Federal Reserve Chair, recently acknowledged that “the United States is on an unsustainable fiscal path. Debt is growing faster than the economy.” In this scenario, gold ETFs are among the best defensive alternatives to protect against systemic risks arising from potential reconfigurations of the international financial system.

Profitability Considerations

It is important to remember that gold itself does not generate income (unlike stocks that pay dividends). Its appeal lies in capital preservation and potential appreciation. Now that the rally in the tech sector begins to show signs of exhaustion, gold ETFs can serve as vehicles to maintain the real value of invested capital.

The Top 6 Gold ETFs for 2024

Choosing the optimal gold ETF depends on your specific needs. Below, we present six prominent options based on expense ratio, liquidity, and performance history:

1. SPDR Gold Shares ETF (NYSE: GLD)

This market giant offers unmatched liquidity and an extensive price tracking history. GLD holds gold bars in London under HSBC Bank USA custody, with managed assets of $56 billion and a daily volume of 8 million shares.

Main features:

• Fee: 0.40% annually (40 basis points)
• Price per share: $202.11
• Performance in 2024: +6.0%

2. iShares Gold Trust ETF (NYSE: IAU)

Another heavyweight, IAU stands out for its low expense ratio and consistent historical performance. Physical gold is stored at JP Morgan Chase Bank in London, with assets of $25.4 billion and a daily volume of 6 million shares.

Main features:

• Fee: 0.25% annually (25 basis points)
• Price per share: $41.27
• Performance in 2024: +6.0%

3. Aberdeen Physical Gold Shares ETF (NYSE: SGOL)

This physically backed ETF offers exposure to gold stored in Swiss and British vaults. With $2.7 billion in assets and a daily volume of 2.1 million shares, SGOL stands out as the most accessible among the top-rated gold ETFs.

Main features:

• Fee: 0.17% annually (17 basis points)
• Price per share: $20.86
• Performance in 2024: +6.0%

4. Goldman Sachs Physical Gold ETF (NYSE: AAAU)

Backed by physical gold stored in British vaults via JPMorgan Chase Bank, this ETF offers institutional peace of mind. With $614 million in net assets and a daily volume of 2.7 million shares, AAAU features a particularly competitive fee.

Main features:

• Fee: 0.18% annually (18 basis points)
• Price per share: $21.60
• Performance in 2024: +6.0%

5. SPDR Gold MiniShares ETF (NYSE: GLDM)

This reduced version of GLD offers the lowest-cost option among physically backed gold ETFs listed in the United States. With $6.1 billion in managed assets and a daily volume of 2 million shares, GLDM is competitive for investors seeking minimal costs.

Main features:

• Fee: 0.10% annually (10 basis points)
• Price per share: $43.28
• Performance in 2024: +6.1%

6. iShares Gold Trust Micro ETF (NYSE: IAUM)

Positioned as the lowest-fee gold ETF on the market, IAUM offers exposure to daily gold price movements. With $1.2 billion in assets and a daily volume of 344,000 shares, it is an accessible alternative for retail investors.

Main features:

• Fee: 0.09% annually
• Price per share: $21.73
• Performance in 2024: +6.0%

Historical Analysis: Gold ETFs Performance (2009-2024)

Since early 2009, the accumulated performance of these instruments has been as follows:

• Spot gold price: +162.31%
• iShares Gold Trust ETF (IAU): +151.19% (best performance)
• SPDR Gold Shares ETF (GLD): +146.76%
• Aberdeen Physical Gold Shares ETF (SGOL): +106.61%
• Goldman Sachs Physical Gold ETF (AAAU): +79.67%
• SPDR Gold MiniShares ETF (GLDM): +72.38%
• iShares Gold Trust Micro ETF (IAUM): +22.82% (since launch in 2021)

Practical Recommendations for Investing in Gold ETFs

Before making an investment decision, consider the following points:

Clearly define your objectives: Set specific investment goals and assess your risk tolerance before allocating capital to gold ETFs. Low-risk investors may benefit from larger allocations, while high-tolerance investors may prefer assets with higher return potential.

Strategically diversify: Do not concentrate your entire portfolio in a single instrument. Gold ETFs work best as a complement to a diversified portfolio that includes multiple asset classes.

Adopt a long-term perspective: Gold prices can be highly volatile in the short term. Consider gold ETFs as a medium- to long-term defensive strategy to protect your capital.

Research the macroeconomic context: Being aware of the global economic and geopolitical environment, especially regarding the U.S. economy, is essential. Although gold is a safe haven, there are more favorable periods for investing.

Evaluate your specific needs: Consider expense ratios, the type of backing (physical versus synthetic), and ETF liquidity before making a final decision. For cost-conscious investors, options like GLDM and IAUM offer extremely competitive ratios.

Final Reflection

Gold ETFs provide an accessible entry point for retail investors to participate in the gold market without the complications of managing physical gold. In a context of unsustainable global debt, geopolitical tensions, and volatility in traditional markets, these instruments can play a strategic defensive role in a balanced portfolio.

The fundamental question each investor must answer is: do you consider it prudent to protect part of your capital through exposure to gold? Historical evidence suggests that, regardless of the economic cycle, gold has proven to be a resilient and reliable store of value.