Which Gold ETF is Right For You?

by on May 26, 2009 | ETFs Mentioned:

It’s no secret that ETFs are rapidly attracting investor dollars away from traditional mutual funds and other investment vehicles. Coupled with the rise of the ETF industry as a whole, an extended period of extreme financial turmoil has made gold ETFs one of the most popular investments in today’s environment. To meet the demand, a number of gold ETFs have popped up. But buyer beware – not all gold funds are the same.

Here’s a look at seven of the largest gold ETFs on the market today, along with their objectives and methodologies.

  • iShares COMEX Gold Trust (IAU): This trust seeks to match the day-to-day movement of the price of gold bullion. IAU has more than $2.0 billion in assets, consisting primarily of gold bullion, and an expense ratio of 0.40%.
  • E-TRACS UBS Bloomberg CMCI Gold Total Return ETN (UBG): This exchange-traded note is a subordinated debt instrument designed to track the performance of the Bloomberg CMCI Gold Total Return Index, which measures the collateralized return from a basket of gold futures. These commodity futures are diversified across five constant maturities from three months to three years, so this ETN may not always track the spot price of bullion exactly.
  • PowerShares Global Gold and Precious Metals ETF (PSAU): This fund is designed to track the performance of the NASDAQ OMX Gold and Precious Metals Index, which measures the performance of globally-traded securities of companies involved in gold and other precious-metals mining-related activities. Since the underlying assets are actually common stocks, this ETF is really not a direct investment in gold, and its performance may vary significantly from the spot price of bullion.
  • ProShares Ultra Gold (UGL): UGL is a leveraged ETF that seeks a return equal to 200% of the daily return of gold buillion, as measured by the U.S. dollar fixing price for delivery in London. As with all leveraged ETFs, compounding of daily returns will likely vary (sometimes significantly) from the target return over that period. As such, UGL is generally appropriate for intraday trading only.
  • SPDR Gold Trust (GLD): Similar to IAU, this ETF attempts to reflect the performance of the price of gold bullion. GLD also holds gold bullion directly, so its price moves closely in line with the price of the actual commodity. Also similar to IAU, GLD maintains an expense ratio of 0.40%.
  • ELEMENTS MLCX Gold Total Return ETN (GOE): This exchange-traded note is in the process of being removed from the NYSE Arca Exchange. In its press release, ELEMENTS notes that GOE, along with two other ETNs, were delisted due to insufficient trading volumes.
  • PowerShares DB Gold Fund (DGL): DGL is based on the Deutsche Bank Liquid Commodity Index – Optimum Yield Gold Excess Return. This index is a rules-based index composed of futures contracts on gold.

So Which is Right For You?

Investors looking for direct exposure to gold may want to invest in an ETF that actually holds bullion, such as GLD or IAU, although DGL and UBG also track the price movements of gold very closely. The table below presents the one-year share price performance for each of these funds. Given the relative consistency returns between these four ETFs, it appears that each does an excellent job of providing investors exposure to movements in the price of gold.

These Gold ETFs Are Up 3% - 5% Over the Last 12 Months

Read the fact sheets for ETFs mentioned in this article: IAU, UBG, PSAU, UGL, GLD, GOE, DGL.