There are several ways to invest in gold. You can buy physical gold in the form of bars, coins, or even jewelry, or purchase shares in a gold mining company or a gold exchange-traded fund (ETF).

Gold ETFs fall into two basic categories: ETFs that own physical gold and those that own gold mining stocks. Some ETFs own physical gold bars stored in vaults and aim to match the movement of the price of gold, while other ETFs own the shares of several gold mining companies, giving investors broad exposure to the sector.

What to look for in the best gold ETFs

The best gold ETFs have three things in common:

  • Large size: The top gold ETFs have significant amounts of assets under management. That gives them a scale advantage that typically yields a lower expense ratio, or management fee. The large number of shares outstanding for each fund creates liquidity, which also makes these ETFs less likely to fall prey to market manipulation or trade at a significant premium to their net asset value.
  • Reasonable expense ratio: All ETFs charge their investors an annual expense ratio. The average expense ratio is 0.5% to 0.75% for actively managed ETFs, but the best ones have lower-than-average fees. Any expense ratio over 1.5% is considered excessive.
  • No use of leverage: The best gold ETFs are non-leveraged, which allows them to closely track an underlying index or asset class for a long period of time. Leveraged ETFs borrow money or use derivatives such as options and futures contracts to magnify their returns compared to the underlying commodity or stock index and are poorly correlated with their underlying indexes over long time periods. Leverage in a down market can also produce magnified losses.

With that criteria in mind, here are some of the best gold ETFs:

Four gold bars on a gold-colored background.

Image source: Getty Images.

Top gold ETFs

The best gold ETFs are:

Gold ETF

Assets Under Management 

Expense Ratio

iShares Gold Trust (NYSEMKT:IAU)

$28 billion

0.25%

VanEck Vectors Gold Miners ETF (NYSEMKT:GDX)

$15 billion

0.51%

VanEck Vectors Junior Gold Miners ETF (NYSEMKT:GDXJ)

$5.5 billion

0.52%

Data source: Company websites. AUM data current as of May 18, 2021. 

Here's a closer look at each of these top gold ETFs:

1. iShares Gold Trust

Investors who want to invest in an ETF whose returns roughly track the price of gold should consider the iShares Gold Trust. This is one of the largest gold ETFs, with roughly $28 billion of assets under management. It also boasts a well-below-average expense ratio and does not use leverage.

Owning shares in this ETF is a great proxy for owning physical gold. But investors don't have to worry about storing or insuring any gold since the London branch of JPMorgan Chase (NYSE:JPM) is responsible for the safekeeping of gold bullion owned by this trust. Overall, this gold ETF has done an excellent job of tracking the price of gold, with only a minor underperformance due to its expense ratio.   

2. VanEck Vectors Gold Miners ETF

The VanEck Vectors Gold Miners ETF is best for those seeking lower risk since it owns the biggest global mining companies. The VanEck Vectors Gold Miners ETF is the largest ETF focused on holding shares of gold mining companies with more than $15 billion of assets under management. That's nearly triple the size of the next-largest gold stock ETF. Further, this ETF doesn't utilize any leverage (other than the debt used by mining companies in their operations). It also has a reasonable expense ratio of 0.51%.

As of mid-2021, this gold ETF held shares of more than 50 gold mining companies. Its top holdings included the largest gold mining companies in the world by market capitalization, led by the following five:

The market cap of the largest mining company on this list is $54.8 billion, and the market cap of the smallest company is $17.8 billion. Overall, these top five holdings make up more than 46% of this gold ETF's assets, led by Newmont at more than 15%. That gives investors greater exposure to the world's largest gold mining companies.

3. VanEck Vectors Junior Gold Miners ETF

The VanEck Vectors Junior Gold Miners ETF offers the most upside potential since it focuses on smaller mining companies, known as junior gold miners, some of which are still exploration-stage companies. However, these smaller miners could grow faster and produce higher returns than their larger rivals. While that increases risk, it provides greater upside potential should one of them discover a large gold deposit.

The VanEck Vectors Junior Gold Miners ETF is reasonably large, with more than $5.5 billion of assets under management. That makes it the second-largest gold miner-focused ETF after VanEck Vectors Gold Miners ETF and more than five times bigger than its next competitor. Further, it has a relatively low expense ratio of 0.52% and doesn't use any leverage at the ETF level.

This gold ETF has nearly 100 holdings. Its five largest are:

These mining companies are much smaller than most held by the VanEck Vectors Gold Miners ETF, with the largest on this list having a market cap of $9.2 billion. Further, the five largest holdings of this ETF make up less than 25% of its assets. Because of that, investors have broad exposure to several up-and-coming gold and silver mining stocks.

Finding the best gold ETF for your portfolio

Gold ETFs allow investors to speculate on gold prices without buying physical gold. The benefit of owning a gold mining company ETF over a gold price ETF is that it can generate higher returns. Gold miners can use the cash flow they generate from producing gold to expand their production, pay dividends, and repurchase shares. Those investments and shareholder returns enable gold mining companies to potentially deliver better total returns compared to the price gains of gold.