Gold ETFs vs. Physical Gold: Why Investing in GLD Makes Sense

You may save money on the spread

When you buy and sell physical gold, typically from dealers, banks, or even retailers like Costco, you're often faced with an additional cost: the bid-ask spread.

Dealers try to make profits by ensuring the price they ask you to pay for gold (the 'ask') is higher than what they can buy (or 'bid') gold for in the futures market. The difference (or 'spread') between the bid and the ask price is how dealers profit from the trade.

For instance, as of October 3rd, the Vancouver Bullion and Currency Exchange (VBCE) could sell 1oz Royal Canadian Mint gold bars for $2,695 USD and buy them back for $2,625 USD. This results in a bid-ask spread of approximately 2.60%.² While this might not seem substantial at first glance, it can significantly erode your potential returns over time.

Transparency is the key takeaway. Physical gold transactions often come with hidden costs like dealer markups, premiums, delivery fees, and potential delays in real-time pricing. It’s also essential to obtain a certificate of ownership or authenticity to confirm the gold’s purity.

In contrast, GLD

operates much like any other stock or ETF, featuring an exceptionally low 30-day median bid-ask spread of just 0.01%.³

The potential to rebalance easily  

GLD has historically provided significant diversification benefits for investors, thanks to its low correlation with equities. By using an ETF like GLD, you can easily quantify the benefits and manage transactions versus physical bullion.

For example, a portfolio consisting of 90% in large-cap U.S. equities and 10% GLD, when rebalanced quarterly, has historically delivered a better risk-adjusted return, with a Sharpe ratio of 0.81 compared to 0.77 for equities alone.⁴

In contrast, incorporating physical gold into your portfolio presents logistical challenges, especially when it comes to rebalancing. If you own physical gold, rebalancing your portfolio means physically taking the gold to a dealer, having it appraised, and dealing with the spread.

Then, you must deposit the cash proceeds, transfer them to your broker, and wait for the settlement before you can complete the rebalancing. Additionally, if your gold holdings are not in small denominations like 1/2 oz or 1 oz bars, precise rebalancing becomes even more cumbersome.

On the other hand, if you own GLD

, rebalancing is as straightforward as managing any other stock or ETF in your portfolio. You simply log into your brokerage account, decide on the number of shares to buy or sell based on your rebalancing strategy, and execute the trade.

Many trading platforms even allow you to specify precise target allocations down to the hundredths of a percent using fractional shares, so you can fine-tune your portfolio’s weighting for each holding.

GLD accurately tracks the spot price of gold

GLD represents fractional, undivided, beneficial ownership interests in its Trust, whose sole assets are gold bullion. It doesn't hold synthetic gold exposure like futures.

The gold is securely held by custodians, specifically JPMorgan Chase Bank, N.A. ("JPM") and HSBC Bank plc ("HSBC"). For those interested in the specifics of the gold backing their investment, GLD provides a publicly accessible bar list that details the gold bars held by the custodians. Bureau Veritas conducts and certifies two separate annual counts (one full and one partial) of the gold held on behalf of the Trust as each of the custodian’s vaults.⁵

This structure ensures that the price of GLD

during market hours closely tracks the spot price of gold. Thus, when you buy or sell shares of GLD, you can be confident that you're transacting at a price that closely reflects the current market value of physical gold, rather than depending on the potentially variable quotes from gold dealers.

The performance of GLD

reflects the performance of the price of gold bullion less the Trust’s expenses of 0.40%.

From December 31, 2014, to September 30, 2024, the net asset value (NAV) of GLD exhibited a compound annual growth rate (CAGR) of 8.12%, compared to 8.32% for the spot price of gold.⁶

This minor annualized tracking error of just 0.2% over a decade demonstrates GLD's effectiveness in mirroring the performance of its underlying benchmark. Meanwhile, potential storages costs and insurance are annual expenses that would apply to physical gold ownership. 

A Milestone Worth Its Weight in Gold

As GLD celebrates its 20th anniversary, it continues to stand as a pioneering force in the world of gold investing. Introduced as the first US-listed gold ETF, GLD has grown to become the largest and most traded gold ETF globally. Choosing GLD

over physical gold isn't just about liquidity and affordability—it also means owning a piece of ETF history.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.

¹ https://tradingeconomics.com/commodity/gold, as of October 10, 2024

² https://www.vbce.ca/gold-silver, as of October 10, 2024

³ https://www.ssga.com/us/en/intermediary/etfs/spdr-gold-shares-gld, as of October 10, 2024

⁴ https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=3iEYRk5rw6f4uKLg3Xh2EA as of October 10, 2024

⁵ https://www.spdrgoldshares.com/usa/gold-bar-list/ as of October 10, 2024

⁶ https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=2OyVNe5Oc5S1bvFVLDmE5t as of October 10, 2024

Important Risk Information

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.

All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

This communication is not intended to be an investment recommendation or investment advice and should not be relied upon as such.

Investing involves risk, and you could lose money on an investment in SPDR® Gold Trust (“GLD®” or “GLD).

Commodities and commodity-index linked securities may be affected by changes in overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes, or political and regulatory developments, as well as trading activity of speculators and arbitrageurs in the underlying commodities.

Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.

Diversification does not ensure a profit or guarantee against loss.

Investing in commodities entails significant risk and is not appropriate for all investors.

Important Information Relating to GLD:

GLD has filed a registration statement (including a prospectus) with the Securities and Exchange Commission (“SEC”) for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents GLD has filed with the SEC for more complete information about GLD and this offering. Please see the GLD prospectus for a detailed discussion of the risks of investing in GLD shares. The GLD prospectus is available by clicking here. You may get these documents for free by visiting EDGAR on the SEC website at sec.gov or by visiting spdrgoldshares.com. Alternatively, GLD or any authorized participant will arrange to send you the prospectus if you request it by calling 866.320.4053.

GLD is not an investment company registered under the Investment Company Act of 1940 (the “1940 Act”) and is not subject to regulation under the Commodity Exchange Act of 1936 (the “CEA”). As a result, shareholders of GLD do not have the protections associated with ownership of shares in an investment company registered under the 1940 Act or the protections afforded by the CEA.

GLD shares trade like stocks, are subject to investment risk and will fluctuate in market value. The value of GLD shares relates directly to the value of the gold held by GLD (less its expenses), and fluctuations in the price of gold could materially and adversely affect an investment in the shares. The price received upon the sale of the shares, which trade at market price, may be more or less than the value of the gold represented by them. GLD does not generate any income, and as GLD regularly sells gold to pay for its ongoing expenses, the amount of gold represented by each Share will decline over time to that extent.

The World Gold Council name and logo are a registered trademark and used with the permission of the World Gold Council pursuant to a license agreement. The World Gold Council is not responsible for the content of, and is not liable for the use of or reliance on, this material.  World Gold Council is an affiliate of GLD’s sponsor.

GLD® is a registered trademark of World Gold Trust Services, LLC used with the permission of World Gold Trust Services, LLC.

For more information, please contact the Marketing Agent for GLD: State Street Global Advisors Funds Distributors, LLC, One Iron Street, Boston, MA, 02210; T: +1 866 320 4053 spdrgoldshares.com

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