Gold in 2024: Why Gold ETFs Deserve a Place in Your Portfolio

Precious metals have regained prominence in global investment strategies. With rising geopolitical tensions, the outlook for lower interest rates, and unprecedented public debt levels, gold ETFs are positioning themselves as an increasingly relevant hedging instrument. This analysis will guide you through the current landscape of gold ETFs and present the most solid options available in 2024.

The resurgence of gold demand: current context

Geopolitical and monetary factors drive interest

Conflicts in Ukraine and the Middle East, along with tensions among superpowers, have rekindled appetite for safe-haven assets. Simultaneously, the possibility that central banks will begin to cut interest rates opens the door to a weaker US dollar, which historically favors gold prices.

The inverse relationship between interest rates and gold prices is well known in markets. When the Fed eases monetary policy, the dollar tends to depreciate, making gold more accessible to international buyers.

A financial system with record debt

Governments have continued issuing fiat currency since the 2008-2009 crisis. The result: the United States has a public debt equivalent to 129% of its GDP, while Japan reaches stratospheric levels of 263.9%. This unsustainable trajectory has prompted reflections even within the Federal Reserve Board on the need for structural adjustments.

In this fiscal uncertainty scenario, gold ETFs emerge as a shield against potential turbulence in the global monetary architecture.

Central banks: net buyers of gold

A survey by the World Gold Council in 2023 revealed that 71% of surveyed central banks expected to increase their gold reserves in the next 12 months, up from 61% in 2022. This trend reflects defensive diversification: gold offers security, liquidity, and intrinsic stability that other reserve forms do not guarantee.

Major holders of reserve gold include the United States, Germany, Italy, France, Russia, China, Switzerland, India, and the Netherlands. Their confidence in precious metals as a store of value is a key indicator for private investors.

Gold demand: a stability profile

During Q4 2023, global gold demand reached 1,149.8 tons, distributed as follows:

• Jewelry: 581.5 tons
• Investment: 258.3 tons
• Central banks: 229.4 tons
• Technology: 80.6 tons

This diversification of demand sources gives gold a notable stability profile. Over the past 14 years, demand has fallen below 1,000 tons on few occasions. Meanwhile, supply mainly depends on mining and recycling, factors that cannot vary drastically in short timeframes.

Understanding gold ETFs: types and features

A gold ETF is an investment vehicle that provides exposure to the precious metal without the complications of physical storage. There are two main modalities:

Physically backed ETFs: hold actual bars deposited in vaults of recognized financial institutions. Each share represents a fractional ownership of that tangible gold.

Synthetic ETFs: employ derivatives (futures, options) to replicate gold price movements. While offering more competitive expense ratios, they introduce counterparty risk linked to the issuer’s solvency.

Advantages of gold ETFs as an investment instrument

High liquidity is a decisive strength: gold ETFs are traded throughout the trading session with substantial volumes. Annual fees are significantly lower than traditional actively managed gold mutual funds.

The main costs include the expense ratio and broker commissions. Generally, these expenses are much more competitive than traditional gold investment alternatives.

Is investing in gold ETFs advisable in 2024?

The answer depends on your risk profile and financial goals. Conservative investors will find gold ETFs a defensive buffer for their portfolio. Those with higher risk appetite may prioritize assets with greater potential returns.

Consider these aspects:

Diversification: Gold ETFs add a protective layer, especially in turbulent stock market contexts or declines in other asset classes.

Inflation hedge: Historical data suggests gold maintains its value during episodes of high inflation. Although inflation has moderated, the risk of resurgence persists as central banks proceed cautiously with rate cuts.

Crisis resilience: Gold is one of the assets that best withstands crashes in global markets. With the tech rally showing signs of exhaustion, gold ETFs could be a strategic option.

An important clarification: gold does not generate income like stock dividends. Its short-term volatility also requires a medium- to long-term perspective to adequately appreciate its defensive benefits.

Gold ETF landscape: six standout options for 2024

The selection will depend on your specific needs. Here are six competitive alternatives based on fees, liquidity, and historical performance:

1. SPDR Gold Shares (GLD)

This market leader in gold ETFs offers unmatched liquidity and an extensive track record of tracking gold prices. It tracks bars stored in London under HSBC Bank USA custody.

• Assets under management: $56 billion
• Daily volume: approximately 8 million shares
• Expense ratio: 40 basis points (0.40% annually)
• Share price: $202.11
• 2024 performance: +6.0%

2. iShares Gold Trust (IAU)

Another sector giant, IAU stands out for its low expense ratio and solid historical performance. The underlying physical gold is held in custody by JP Morgan Chase Bank in London.

• Assets under management: $25.4 billion
• Average daily volume: 6 million shares
• Expense ratio: 25 basis points (0.25% annually)
• Share price: $41.27
• 2024 performance: +6.0%

3. Aberdeen Physical Gold Shares (SGOL)

This physically backed ETF stores its gold in secure vaults located in Switzerland and the UK. It represents an accessible option among higher-tier funds.

• Assets under management: $2.7 billion
• Daily volume: 2.1 million shares
• Expense ratio: 17 basis points (0.17% annually)
• Share price: $20.86
• 2024 performance: +6.0%

4. Goldman Sachs Physical Gold (AAAU)

Backed by a global financial institution, this ETF holds its assets in vaults in the UK through JPMorgan Chase Bank. Its fees are well below the industry average for commodities.

• Assets under management: $614 million
• Daily volume: 2.7 million shares
• Expense ratio: 18 basis points (0.18% annually)
• Share price: $21.60
• 2024 performance: +6.0%

5. SPDR Gold MiniShares (GLDM)

A reduced version of the original GLD, GLDM positions itself as the lowest-cost option among US-backed physical gold ETFs.

• Assets under management: $6.1 billion
• Average daily volume: 2 million shares
• Expense ratio: 10 basis points (0.10% annually)
• Share price: $43.28
• 2024 performance: +6.1%

6. iShares Gold Trust Micro (IAUM)

The ETF with the lowest cost in the market, IAUM is especially aimed at retail investors seeking accessibility without sacrificing results.

• Assets under management: $1.2 billion
• Average daily volume: 344,000 shares
• Expense ratio: 9 basis points (0.09% annually)
• Share price: $21.73
• 2024 performance: +6.0%

Comparative analysis: performance since 2009

Spot gold has appreciated by 162.31% since early 2009. In contrast, the performance of the six gold ETFs has shown variations:

• IAU (iShares): 151.19%
• GLD (SPDR): 146.76%
• SGOL (Aberdeen): 106.61%
• AAAU (Goldman Sachs): 79.67%
• GLDM (SPDR MiniShares): 72.38%
• IAUM (iShares Micro): 22.82% (since its launch in 2021)

Performance variations reflect differences in structure, costs, and fund inception timing.

Practical guidelines for investing in gold ETFs

Before committing capital, consider these fundamental principles:

Clarify your financial goals: Explicitly define your investment objectives and your tolerance for volatility. This will determine the proportion of your portfolio allocated to gold.

Build a balanced portfolio: While gold ETFs offer stability, do not concentrate all your capital in a single asset. Complement your gold position with stocks, bonds, and other instruments aligned with your profile.

Adopt a long-term mindset: Gold prices experience significant short-term fluctuations. Gold ETFs tend to perform better as a sustained investment strategy to mitigate systemic risks.

Research the macroeconomic context: Your decision to invest in gold ETFs should be informed by your understanding of the global economic and geopolitical landscape, especially the dynamics affecting the US economy and its currency.

Final reflection

Gold ETFs provide investors of all sizes the opportunity to participate in the precious metals market with minimal initial capital. You now know the main features of the six most prominent options, their management costs, and liquidity.

With interest rates potentially declining, persistent geopolitical tensions, and unsustainable public debt levels, gold ETFs deserve a strategic place in defensive portfolios. The final decision depends on your personalized analysis of these factors and your willingness to position yourself in gold as a long-term store of value.