The Cheapest Gold ETFs

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Includes: GLD, GTU, PHYS
by: Kevin McElroy

“Beware of little expenses; A small leak will sink a great ship.” - Benjamin Franklin

I started off today’s issue with a quote from one of the best minds of all time. Ben Franklin preached prudence, self-reliance, frugality and living within your means. It’s funny to think of these ideas as radical today. But they are. If you listen to our Government leaders, our bankers - even many professional portfolio managers - they advise taking on as much debt as you can handle. They advise reckless spending. High interest rates - to them - are a way of life.

But they don’t have to be.

As the weather turns decidedly wintery here in Vermont, and I take a look at the thermostat, I’m reminded of the good sense of Ben Franklin, who said “A penny saved is a penny earned.”

It’s not enough to pick the right investment class - you also have to pick the right investment. And money that’s paid unnecessarily in expenses might as well be flushed down the toilet.

So I thought I’d do some digging and find the cheapest gold ETFs in the market. And I was pretty surprised at what I found.

Before I get started, I want to remind you that I’m not a huge fan of owning gold in an ETF. I prefer either the safety of physical gold, OR the upside of owning gold stocks. The ETFs I talk about today are strictly physical gold proxies. I understand that taking delivery of physical gold is not convenient or attractive for everybody.

And I recognize that for some investors, these types of ETFs make sense.

The first thing I want to reveal is that the largest gold ETF is also among the most expensive. Instead of passing on volume discounts to shareholders, the management of the SPDR Gold Trust (NYSE: GLD) have seen it better fitting to keep the difference.

GLD’s management charges a 0.40% expense ratio. By ETF standards, that’s not terrible, but there are better deals to be had.

You might be familiar with Sprott Physical Gold Trust (NYSE: PHYS) a relatively new gold ETF. They currently charge a 0.47% expense ratio. That’s among the highest expense ratios for gold ETFs, but it’s one of the few (possibly the only) ETFs that offers the possibility of redeeming shares for physical gold.

From their website: Unit-holders have the ability, on a monthly basis and as described herein, to redeem their units for physical gold bullion for a redemption price equal to 100% of the NAV of the redeemed units, less redemption and delivery expenses.”

PHYS also has done a good job of keeping pace with gains made in gold. Over the past 10 months, gold is up nearly 24%, but Sprott’s fund is up over 27%. That’s likely just an arbitrage anomaly, but it’s good to see an ETF living up to price movements in the underlying commodity.

There are literally dozens of gold ETFs and most seem to be goal-seeking expense ratios under that of GLD. So you’ll see many of them at 0.39%.

I’ve included a performance chart of a few of them below.

I’ll stop beating around the bush now, and talk about the cheapest gold ETF out there: Central Gold Trust (AMEX: GTU).

They charge a 0.36% expense ratio. The good news is, they have a history of lowering this expense ratio as the fund gets larger. As you can see below, Central Gold has lagged the price of gold lately. I don’t think that’s necessarily a bad thing. They also hold 98% of their assets in gold, with the other 2% in cash. Though it’s a Canadian ETF, all assets are denominated in dollars.

The best part: this ETF is taxed like a mutual fund - which is a huge benefit.


GLD, as well as every other physical gold ETF I’ve found, is taxed like physical gold: as a collectible. Those taxes can be much higher than simple capital gains taxes you pay on a mutual fund.

So if you’re looking to pinch your pennies while investing in gold ETFs, this fund seems to be one of the cheapest ways to play the trend.

Disclosure: long physical gold and silver. No other positions