Gold ETFs: How They Work, Pros and Cons, How to Buy

What are Gold ETFs?

Gold ETFs are exchange-traded funds that give investors exposure to gold price movements. They are financial products designed to track the price of gold without requiring investors to buy, store, or insure physical gold.

As of January 2026, global gold ETFs’ total assets under management (AUM) reached around US$559 billion, with holdings exceeding 4,000 tonnes of gold. This level of assets shows that gold ETFs are widely used by investors as a practical and trusted way to gain exposure to gold.

What are the different types of gold ETFs?

The 4 main types of gold ETFs are physical gold ETFs, gold mining ETFs, leveraged gold ETFs, and inverse gold ETFs.

Gold ETF types are classified based on how the fund gains exposure to gold and how it is structured to track gold price movements. These types reflect the underlying assets the ETF holds and the return objective it is designed to deliver.

Physical gold ETFs

Physical gold ETFs hold physical gold bullion in secure vaults. Their price is designed to track the spot price of gold, providing direct exposure to gold price movements. SPDR Gold Shares (GLD) is an example of a physical gold ETF.

Most physical gold ETFs hold allocated gold bullion on behalf of investors. Each ETF unit represents a fractional interest in the fund’s gold holdings. For example, a single share may represent a small fraction of an ounce of gold, such as around 0.01 ounces (0.31 grams), depending on the fund’s structure.

Gold mining ETFs

Gold mining ETFs invest in shares of companies involved in gold exploration, mining, and production. Their performance depends on both gold prices and the operational performance of the mining companies. VanEck Gold Miners ETF (GDX) is an example of a gold mining ETF.

Leveraged gold ETFs

Leveraged gold ETFs use derivatives to amplify gold’s daily price movements. They are designed to deliver a multiple of gold’s daily return, which increases both potential profits and potential losses. ProShares Ultra Gold (UGL) is an example of leveraged gold ETF.

Inverse gold ETFs

Inverse gold ETFs are structured to move in the opposite direction of gold prices. They allow investors to benefit from falling gold prices without short selling, but they carry higher risk due to daily rebalancing. ProShares UltraShort Gold (GLL) is an example of an inverse gold ETF.

How do gold ETFs work?

Gold ETFs work by tracking the price of gold through a fund structure that is traded on a stock exchange. When investors buy or sell shares of a gold ETF, they are trading units of an investment fund similar to a mutual fund that trades throughout the day like shares.

This structure allows investors to gain and manage gold exposure during market hours without handling physical gold. The value of each gold ETF unit mirrors gold price movements, and regular share creation and redemption helps keep the ETF price closely aligned with the underlying gold price.

Gold ETFs also charge ongoing management fees. For major physical gold ETFs, annual expense ratios commonly range from 0.1% to 0.4%, which gradually reduces returns over time compared to holding gold directly.

What are the benefits of gold ETFs?

There are 6 benefits of gold ETFs:

1. Easy access to gold exposure

Gold ETFs allow investors to gain gold exposure more easily than traditional methods such as buying and storing physical gold.

2. Hedge against inflation and currency risk

Gold ETFs are commonly used as a hedge against inflation and currency depreciation. Because their value tracks gold prices, they can help preserve purchasing power when fiat currencies weaken.

3. Lower overall costs

Gold ETFs typically have lower overall costs compared to buying physical gold. Investors do not pay storage, insurance, or security costs, and most gold ETFs do not charge entry or exit loads. Annual expense ratios for major physical gold ETFs commonly range from 0.1% to 0.4%, which is often lower than the combined costs of storing and insuring physical gold over time.

4. Fully allocated gold exposure

Many physical gold ETFs provide exposure backed by fully allocated gold bullion. This means the fund holds gold specifically allocated to investors rather than relying on unsecured claims.

5. Flexible investment size

Gold ETFs allow investors to buy and sell small quantities of gold exposure. This flexibility removes the need for large upfront commitments and makes gold investing more accessible for active portfolio management.

6. Liquidity and transparency

Because gold ETFs are traded on stock exchanges, they offer high liquidity and transparent pricing. For example, SPDR Gold Shares (GLD) regularly trades more than 14 million shares per day on average, which allows investors to enter and exit positions during market hours at prices that closely reflect gold market movements.

What are the limitations of gold ETFs?

There are 6 limitations of gold ETFs:

1. Lack of physical ownership

Most gold ETFs do not permit delivery of physical bullion to retail investors. Investors gain price exposure to gold, but they do not directly own or control physical gold.

2. Tax treatment similar to physical gold

In many jurisdictions, investors pay the same taxes on gold ETFs as they would on gold bullion. Gold ETFs typically face capital gains tax treatment, which can reduce after-tax returns.

3. Ongoing fees and expenses

Gold ETFs often carry an expense ratio and may include additional management or administrative fees. These costs can gradually reduce returns over time, especially for long-term holders.

4. Lower income potential

Gold ETFs are considered a relatively safe investment, but they do not generate income. Their returns depend solely on gold price movements, which means yields may be lower compared to income-producing assets.

5. Sensitivity to global factors

Gold ETF prices are influenced by geopolitical turmoil, global trade policies, and broader macroeconomic conditions. Rapid changes in these factors can increase price volatility.

6. Not suitable for all investors

Because gold ETF returns are driven by gold price movements and external economic forces, they may not be well-suited for conservative investors seeking stable or predictable returns.

How do I invest in gold ETFs?

Follow these 5 steps to invest in gold ETFs:

1. Choose the type of gold ETF exposure you want

Decide whether you want a physical gold ETF, a gold mining ETF, or a leveraged or inverse gold ETF. This choice determines how closely the ETF tracks gold prices and how much risk the product carries.

2. Open or use an existing brokerage or trading account

Invest in gold ETFs through a brokerage or trading platform that offers access to the stock exchange where the ETF is listed.

3. Research the ETF before buying

Check what the ETF holds, how it tracks gold, its expense ratio, liquidity, and historical tracking performance. Confirm that the ETF’s structure matches your investment goal.

4. Place a buy order for the gold ETF

Search for the ETF by its ticker symbol, choose your position size, and place an order type that fits your approach, such as a market order or limit order.

5. Monitor and manage your position

Review performance, costs, and how the ETF behaves during different market conditions. Close the position when it no longer fits your portfolio goals or risk limits.

While gold ETFs are a popular way to gain gold exposure, they represent only one approach within the broader set of ways to invest in gold, which includes instruments and ownership structures with different risk profiles, cost considerations, and trading characteristics. Understanding these alternatives can help investors choose a method that aligns more closely with their investment goals, time horizon, and level of involvement beyond using gold ETFs alone.

Who should invest in gold ETFs?

Gold ETFs are suitable for investors who:

• Want exposure to gold price movements without owning physical gold

• Seek portfolio diversification

• Aim to hedge against inflation and currency depreciation

• Prefer liquid and transparent investments

• Have a medium- to long-term investment horizon

Gold ETFs are less suitable for investors who require regular income or direct ownership of physical gold.

What are the popular gold ETFs to buy?

Popular gold ETFs refer to gold ETFs with high trading volume, which shows how actively they are bought and sold in the market. The 10 most popular gold ETFs as of January 2026 are:

How are gold ETFs taxed?

Gold ETFs are taxed based on fund structure, holding period, and the type of account used to hold the investment. Tax treatment varies by country, but the United States provides a useful reference point.

Fund structure

Gold ETFs that hold physical gold are often structured as grantor trusts. In the United States, investors are treated as owning a share of the underlying gold, and long-term capital gains may be taxed at a maximum rate of 28%, reflecting gold’s classification as a collectible. Taxes are generally due only when ETF shares are sold.

Gold ETFs that gain exposure through gold futures may be structured as partnerships. These funds can be taxed under special rules that split gains between long-term and short-term treatment, regardless of how long the ETF is held.

Holding period

In many jurisdictions, gold ETF gains are classified as:

• Short-term capital gains (STCG) for shorter holding periods

• Long-term capital gains (LTCG) once a minimum holding period is met

In the US, gold ETFs are generally considered long-term after 12 months, while shorter holdings are taxed as ordinary income.

Tax-advantaged accounts

When gold ETFs are held in retirement or tax-advantaged accounts, taxes on gains are often deferred or reduced until withdrawal, depending on local regulations.

What are the alternatives to gold ETFs?

The 2 alternatives to gold ETFs are gold CFDs and physical gold. These gold ETF alternatives provide exposure to gold in different ways, depending on whether an investor prioritizes active price speculation or direct ownership of the metal.

How do I choose between gold ETFs vs gold CFDs?

Choosing between gold ETFs and gold CFDs depends on how actively you want to trade gold.

Choose gold ETFs if you want simple, long-term exposure to gold through a traditional investment vehicle. Gold ETFs are typically used for buy-and-hold strategies and track the gold price over time without leverage or frequent position management.

Choose gold CFDs if you want to actively trade gold price movements. Gold CFDs are designed for short-term trading and allow you to trade both rising and falling prices using flexible position sizes, which suits traders who want to react quickly to market conditions.

How do I choose between gold ETFs vs physical gold?

Choosing between gold ETFs and physical gold depends on whether you want financial exposure or direct ownership.

Choose gold ETFs if you want exposure to gold prices without handling, storing, or insuring physical gold. Gold ETFs offer easier access, higher liquidity, and the ability to buy or sell quickly through financial markets.

Choose physical gold if you want direct ownership of gold as a tangible asset. Physical gold is often held for long-term wealth preservation, but it involves storage, insurance, and lower liquidity compared to exchange-traded products.