Gold prices have risen by nearly a third over the past year to $3,370 per ounce. With tariffs and budget-driven inflation risk on the rise and equity valuations stretched, many investors are turning toward the precious metal as a hedge against rising geopolitical uncertainty.

Gold ETFs offer a convenient way to build exposure to the commodity without the added expense of purchasing and storing physical gold. But with more than 30 different gold ETFs trading on U.S. exchanges, choosing the right option can be intimidating.

Let’s take a look at the different types of gold ETFs, key differences to consider, and how to choose the best option for your portfolio and goals.

Gold ETFs vs. Physical Gold

Physical gold refers to the ownership of gold bullion, coins or bars. Unlike numbers in an account, these are assets you can touch and see on a daily basis. They come in various weights ranging from a quarter of an ounce to more than a kilogram. The most common physical gold investment is gold coins, such as American Eagles, Canadian Maple Leafs, and South African Krugerrands.

There are two challenges with gold:

• Most gold coins and bullions carry a premium over their melt value, which means you’ll often pay more than the market rate. For example, American Eagles cost $4,200 when purchased from the United States Mint despite gold prices hovering around $3,370, as of writing.

• Converting gold coins or bullion back into dollars often involves finding a counterparty willing to purchase your gold at a fair market price. In many cases, you’ll end up receiving less than the market price after fees or discounts when dealing with a dealer or private buyer.

Gold ETFs offer a more convenient and cost-effective way to invest in gold. Since they trade on an exchange with a lot more liquidity, many gold ETFs offer a +/- 0.5% premium or discount from the spot market price of gold compared to the 20% premium charged by the United States Mint. You can also convert the gold exposure back into cash within seconds by simply selling the ETF shares.

The biggest drawback of gold ETFs are:

• Gold ETFs charge an expense ratio or an annual fee added to the purchase cost. For instance, the SPDR® Gold Shares ETF (GLD) charges a 0.4% expense ratio. If you have $100,000 invested in GLD, this means you would pay $400 per year to the GLD asset managers.

• Gold ETFs involve some counterparty risk. You don’t have physical ownership over the gold held by the ETF, which means there’s a possibility the other party in the transaction may not hold up their end of the deal, although that’s not very likely to happen.

Physical vs. Futures Gold ETFs

Gold ETFs use different strategies to provide shareholders with exposure to the precious metal. While you should always consider factors like a fund’s expense ratio and liquidity, understanding the underlying strategies they employ is essential to avoid any surprises down the road.

Physical Gold ETFs

Physical gold ETFs, like the SPDR® Gold Shares ETF (GLD) or the iShares Gold Trust (IAU), hold actual gold bullion in secure vaults. When you purchase one of these ETFs, you effectively own a fraction of a gold bar. They provide a high correlation to actual gold prices, less counterparty risk since you’re only dealing with one company, and an easy-to-understand investment thesis.

Physical Gold ETFs

These ETFs are sorted by their YTD total return, which ranges from 23% to 28%. They have AUM between $937M to $63B, with expenses running between 0.1% to 0.4%.

Futures-based Gold ETFs

Futures-based ETFs, such as the Invesco DB Gold Fund (DGL) or the ProShares Ultra Gold ETF (UGL), use derivatives to gain exposure to gold. Rather than direct ownership, they roll over futures contracts to maintain exposure, buying new ones as old ones expire. This adds a layer of complexity and counterparty risk, but could provide more leverage to amplify gains (and losses).

One of the most surprising risks with futures-based commodity ETFs is contango. When a market is in contango, futures contracts sell for more than the spot price, resulting in worse performance than holding the spot commodity. Moreover, rolling futures contracts in contango will steadily erode returns, which may be surprising when spot prices are relatively steady.

Futures-based Gold ETFs

These ETFs are sorted by their YTD total return, which ranges from -39% to 57%. They have AUM between $3M to $192M, with expenses running between 0.75% to 0.95%.

The Bottom Line

Gold ETFs have numerous advantages over holding physical gold, but choosing the best fund can prove challenging without the right background information.

Long-term investors that want to hold gold as a hedge against inflation or recession risk prefer physical gold ETFs. They track spot prices more closely, have fewer hidden costs, and are easier to hold over time. On the other hand, futures-based ETFs may appeal to short-term speculators or advanced investors that understand the complexities of futures markets.