ETF.com Insight

Investor interest in safe-haven assets and beating imagined future inflation has made one of the funds in this segment—GLD—one of the largest ETFs in existence. On the other “ for those trading in retail quantities, IAU is the best bet ” hand, the recent weakness in gold and a flight from its proxies has taken a huge bite out of the segment’s asset base, cutting its combined AUM by more than half.

Institutional investors may find trading GLD far cheaper than trading the other funds. Its handle is 10x bigger than its largest competitor, so those paying a per-share price to transact will find it cheaper, and GLD’s robust options market allows for liquidity extension and overlay strategies.

But for those trading in retail quantities, IAU is the best bet: It charges just 25 bps and sees excellent daily volume, albeit with slightly wider spreads. AGOL and SGOL also hold physical gold, but differentiate themselves by holding it in vaults in other countries (Singapore and Switzerland, respectively). While the vault location won’t have an impact on the value of the gold, it may console those worried about having all their golden eggs in one basket. AGOL and SGOL charge 39 bps, so you’ll pay up for diversifying your vault exposure.

The newest entrant in the segment, OUNZ, holds physical gold in a London vault. It allows investors to redeem their shares for gold coins in amounts as small as one troy ounce, without incurring a tax liability. Fees apply for this service, however, and they can be prohibitive for those redeeming less than several ounces.

The remaining funds in the segment don’t hold physical gold.

GLDI, an exchange-traded note, tracks the returns of a hypothetical investment in GLD and 1-month covered-call options. It’s pricier than its peers (65 bps), but the yield from its short-call options may make up for that. Three recent launches, GEUR, GYEN, and GGBP, go long gold (via either futures contracts or ETFs) while shorting a currency. Effectively, this strategy allows US investors to receive the same return as gold investors in other countries.

The other three funds in the segment—DGL, UBG and TBAR—hold or track gold futures contracts. DGL and UBG pick contracts to try to beat gold’s persistent contango, while TBAR switches between gold futures and 3-month Treasury bills depending on gold’s 200-day moving average. They are not the best choices if your core premise is getting access to gold, but based on the recent weakness in the space, that may not be a bad thing. These three funds cost more than the physical gold funds and have underperformed gold spot to date, so may not be the best choices if your core premise is getting access to gold.  (Insight updated 07/24/14)