What is a gold ETF and how does it work?
A gold ETF lets you track the price of gold through a regular brokerage account, without storing any physical metal yourself. But not all gold ETFs work the same way — the difference matters.
The basic idea
An exchange-traded fund is a basket of assets that trades on a stock exchange like a regular share. A gold ETF is one where the underlying asset is gold — either bullion held in a vault, or some exposure to gold prices through another structure. You buy and sell shares during market hours, just like buying a stock.
Two types: physically backed vs. synthetic
A physically backed gold ETF actually holds gold bars in a vault. Each share represents a fractional claim on that physical gold. SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) are the largest examples — both hold allocated gold bullion. When you buy a share, you're not buying gold directly, but the fund's holdings are supposed to back your investment with the real thing.
A synthetic ETF instead uses derivatives (futures contracts, swaps) to track the gold price without holding the metal. These are more common in some markets outside the US. They introduce additional counterparty risk that physically backed ETFs don't have.
What a mining ETF is (and how it's different)
A gold miner ETF like VanEck Gold Miners ETF (GDX) holds shares of gold mining companies, not gold itself. Its performance reflects how mining stocks are doing, which is related to but not the same as the gold price — miners have their own costs, debt, management, and country risks on top of metal price exposure. On many days, GDX moves more in percentage terms than gold spot, because of this operating leverage.
GoldAlert tracks both: GLD (physically backed gold ETF), SLV (iShares Silver Trust, physically backed silver ETF), and GDX (gold miners ETF). They're in separate asset categories precisely because they behave differently.
The fee
Every ETF charges an annual expense ratio — a small percentage deducted from the fund's holdings automatically. GLD's expense ratio has historically been around 0.40% per year; lower-cost alternatives like IAU charge around 0.25%. These sound small but compound over a long holding period, which is why the difference between similar ETFs' fees is worth checking before you hold one for years.
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This article explains how gold ETFs work and is not investment advice. Always read the fund prospectus before investing.