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The Best Gold ETF for a Passive Portfolio

by Apoorv Trivedi on
ETFs Featured

The Bottom Line

We sifted through more than 150 precious metals ETFs listed in US and London to identify the best options for a passive portfolio.

We also compared these to buying physical gold and investing in gold savings accounts in Singapore.

The London listed iShares Physical Gold ETF, IGLN, is the best option for most people looking to invest in gold. It has a low expense ratio and is liquid enough for most people.

For silver we recommend iShares Physical Silver ETF (SSLV) due to its large AUM and low TER, although it is not very liquid.

Our choices were primarily based on the 15-year total cost of ownership of the ETFs and their liquidity, although we considered other factors such as AUM, physical backing and convenience too.

Table 1: Best ETFs for Precious Metals Exposure

Ticker Type AUM
(US$ mm)
Avg. Daily
Traded Value
(US$ mm)
15-year
Total Cost
Gold
IGLN LN UK ETF 16,603 34 2.6%
GLDM US ETF 5,190 82 2.9%
XAUUSD* Metal 1.5%
Silver
SSLV LN UK ETF 15,964 0.30 3.7%
SIVR US US ETF 941 10.5 4.8%
XAGUSD* Metal 1.6%
* May require special trading permissions and may not be available to all investors.

Sources: ETF.com, justETF.com, trackinginsight.com, and websites of respective ETF providers like iShares and XTrackers


The Research


Who this is for

If you want to invest in a globally diversified passive portfolio at a low cost but are confused by the large number of ETFs listed on various exchanges, our recommendations are for you.

This post focuses on the best precious metals ETFs. See here for more on the best equity & bond ETFs.

Our research was largely focused on people living in Singapore but most of the analysis should be relevant for people in other locations as well.


Why you should trust us

We spent 10s of hours researching the differences between ETFs listed on different venues, primarily in US and London, but also in Hong Kong & Singapore.

We looked through the details on more than 100 ETFs to identify the most promising precious metal ETFs. We then applied the most comprehensive system of comparison to definitively answer the question of which Gold ETFs work best as a part of a globally diversified portfolio.


How we picked

Our approach for shortlisting precious metal ETFs was similar to what we used for equity ETFs. We summarize it below but if you want to understand our method in detail, you should read that post.

We relied on 3 main factors to make our recommendations: 15-year total cost of ownership (TCO), Total AUM, and Liquidity.

Total AUM or assets under management is the total amount that has been invested in the ETF by investors. This is important because smaller ETFs may not generate enough revenue to be viable for the issuer, and the issuer may eventually close the ETF and return the funds to investors.

Usually this will be a small inconvenience as you can simply reinvest the refunded money into another fund. There is a risk, though, that you need to stay out of the market for a few days while you wait for the refund and are able to reinvest.

To avoid this risk, we preferred ETF that had large AUMs, ideally at least US$1bn and where possible we eliminated ETFs with lower AUMs from our consideration.

Liquidity More liquid ETFs are preferable as they allow you to quickly buy or sell as much as you need to. Less liquid ETFs can require you to buy or sell over multiple hours or even days, depending on the size of your position.

All things equal, we preferred more liquid ETFs, ideally trading more than US$1 million a day or (if the ETF is likely to have a lower weight in a passive portfolio) able to support a at least US$10 million portfolio.

For the UOB’s gold savings accounts and gold bars we assumed that liquidity would not be a problem since UOB is committed to taking the other side there.

15-year Total Cost of Ownership (TCO) Why 15-year TCO? There are a number of different costs associated with owning ETFs that trade in different venues. Some of these costs are one off while others are annual.

So comparing the costs over a single year will be incorrectly penalize a venue where the one off costs are higher but ongoing costs are lower.

Since we are looking for ETFs for a core, long term portfolio, we assessed total cost assuming that you hold the ETF for 15 years and then sell.

We preferred ETFs with the lower total cost.

We have assumed no capital gains tax, which is the case in Singapore. In other countries, the treatment may be different depending on various factors.

Unless your country has a specific treaty with the country where the ETF is listed, the treatment should be identical across all ETFs and should not change the recommendation.

 – All-in Trading Cost For ETFs, we used the all-in trading cost for each market on Interactive Brokers based on our analysis of brokers in Singapore. This includes the broking commission as well as the FX spread charged by IB on both, the buy and the sell transaction.

If you use another broker in Singapore, chances are you will pay an additional 0.60%-0.80% for converting your SGD to USD or GBP when buying and back to SGD when selling.

For UOB Gold savings accounts, we added the spread UOB charges for transacting in the account and the monthly fee they charge. For Gold certificates we added the flat fee and the annual fee while for Gold bars we took only the spread.

We found that the all-in trading cost isn’t that important for the 15-year total cost no matter which broker or trading venue you use.

One cost we did not include was the bid-ask spread for different ETFs. We found it difficult to get this information for many ETFs. However we think the impact of bid-ask spreads on the total cost should be small. This is because where the data was available, the spreads ranged from <0.01% to 0.2%.

Since this cost is incurred only twice over 15 years, it does not move the needle on our recommendations.

 – Tracking Difference measures how much an ETF’s performance differs from its benchmark index. The difference may happen because of fees, difference in composition of the ETF and the benchmark index, and many other factors.

Unlike equity ETFs, which can have positive or negative tracking difference, precious metal ETFs all had negative tracking difference which was nearly identical to the Total Expense Ratio (TER).

The TER includes the total fees and costs charged to you by the company operating the ETF. This is charged every year and was included 15 times in the calculation of the 15-year total cost.

This makes sense since except for the TER, there is no other reason for an ETF that physically owns a commodity to diverge in value from that commodity’s price.

 – Tax Impact Unlike equity and bond ETFs, precious metal / gold ETFs do not generate any income and so there is no withholding tax involved.

However, US tax code is possibly even more complicated for commodity ETFs depending on how the fund is structured.

ETFs that hold the commodity physically are typically structured as Grantor trusts and attract a 28% long term capital gains tax (vs. 20% long term rate for equities) and nearly 40% short term capital gains tax.

ETFs that use futures to get exposure to commodities are structured as Limited Partnerships and get a 20% tax rate on 60% of the gains and the remaining 40% is taxed on the investors ordinary income tax rate.

Finally, Exchange Traded Notes (ETNs) are treated like equity funds, getting a 20% long term rate and nearly 40% on short term gains.

Technically, non-resident aliens (e.g. Singapore Residents) do not pay capital gains taxes on US investments and none of this should matter. However, we did not get good answers on some of the specifics for commodity ETFs.

Since the London listed ETFs (esp. IGLN) are cheaper than US ETFs and sufficiently liquid for most portfolios, we ignored the US tax impact for now.

This is not tax advice. You should consult tax accountants and lawyers before investing in these instruments.

UOB Gold Products are a well known option if you live in Singapore. They sell (and buy) gold in form of bars, bullion coins, certificates and savings accounts.

We don’t know the AUM for these products but UOB posts updated quotes for these on their websites and we assume they can handle amounts that would be sufficient for most people on a daily basis.

This product has been around for more than 15 years that we know and so we assume that it should continue to be available in future.

To compare the total cost of ownership for these products, we included the quoted spread, transaction charges and the monthly or annual fee over 15 years. We computed the total cost for amounts ranging from 50gm to 1Kg of gold.

Table 2: 15 year Total Cost of Ownership for UOB Gold Products

UOB Products 50gm 250gm 500gm 1000gm
Gold Bars 0.8%
Gold Certificates 1.4%
PAMP Gold bars 3.0% 2.0% 2.0% 2.0%
Gold Bullion Coins 3.7% 3.7% 3.7% 3.7%
Gold Savings Account 44% 9.4% 5.1% 4.5%
Silver Savings Account 27% 8.9% 8.9% 8.9%
Data Source: UOB : Gold & Silver

For gold bars and bullion coins, we did not account for the cost of storage. This can be quite large if you use a new safe deposit box with a bank (cost S$190 – S$1,000+ per year). If you already have a safe location to store these bars and coins, then they can be very cost effective in larger tickets (1kg+).

Overall though, while the total cost of ownership for the UOB Gold products is reasonable, ETFs we chose are cheaper and more convenient in most cases.

OCBC Precious Metals Account was launched in Oct 2021. This account allows you to trade Gold and Silver in currency form (XAU) from the OCBC app.

There are no transaction fees or account maintenance fees but in our testing OCBC appears to charge about a 1.33% spread, which is very high for gold in currency form.

Interactive Brokers offers the same product with a spread of 0.015% (or 25¢/oz vs. S$16/oz by OCBC) and a 0.1% annual storage cost.


The Best Precious Metal ETFs

The iShares Physical Gold ETF listed in London (IGLN) is the best option for investing in gold in a passive portfolio. It has a low 0.12% TER and it trades more than US$30 million a day.

It is backed by physical gold and is much more convenient to buy, sell or hold unlike other physical options like bars, or coins which require you to manage storage and are inconvenient to trade.

With a share price of ~S$50, it allows for small investments, unlike the gold bars or gold certificates by UOB, which trade in 1Kg or ~S$80,000 increments.

Ticker IGLN LN GLDM US XAUUSD*
Description iShares
Physical Gold
SPDR Gold
MiniShares Trust
Gold
Listing London USA London
Type UK ETF US ETF FX
AUM ($mm) 16,603 5,190
Avg. Daily Traded Value ($mm) 34 82
Total Expense Ratio 0.12% 0.18% 0.10%
Tracking Difference 0.12% 0.17% 0.10%
Trading Cost incl. FX 0.39% 0.08% 0.02%
15-year TCO 2.60% 2.89% 1.54%
* May require special trading permissions and may not be available to all investors.

Sources: ETF.com, justETF.com, trackinginsight.com, and websites of respective ETF providers like iShares and XTrackers

UOB Gold and Silver Savings accounts are quite expensive if your investment is less than about S$40,000. This is because of the minimum monthly fees. For larger amounts they are more competitive but still not cheaper.

If you are comfortable buying gold on metals exchanges (XAU), we recommend using our favorite broker, IB with spreads that are 1/10th of the same option at OCBC. This carries a 0.1% annual storage cost but is still cheaper overall than ETFs. However, this may require special trading permissions with your brokers and may not be available to all.

While US ETFs like GLD and IAU are much more liquid than IGLN, they also have much higher TERs and we would avoid them. If you need to own your gold in a US ETF, we recommend GLDM, which trades US$80+ million a day and has a low 0.18% TER.

For Silver, we recommend iShares Physical Silver ETF (SSLV). It has a $15bn AUM but trades only about US$300K per day. SIVR (abrdn Physical Silver Shares ETF) is the best US ETF to own silver, with close to US$1bn AUM and 0.30% TER. It trades more than US$10 million a day.

Ticker SSLV LN SIVR US XAGUSD*
Description Invesco
Physical Silver
abrdn Physical
Silver Shares ETF
Silver
Listing London USA London
Type UCITS US ETF US ETF
AUM ($mm) 15,964 941
Avg. Daily Traded Value ($mm) 0.3 11
Total Expense Ratio 0.19% 0.30% 0.10%
Tracking Difference 0.15% 0.27% 0.10%
Trading Cost incl. FX 0.39% 0.08% 0.03%
15-year TCO 3.67% 4.76% 1.57%
* May require special trading permissions and may not be available to all investors.

Sources: ETF.com, justETF.com, trackinginsight.com, and websites of respective ETF providers like iShares and XTrackers


Complete Data

The complete data used in our analysis is available as a Google sheet.

Disclaimer: We have made every effort to ensure the accuracy of all data and analysis included above. However it is possible that some errors made it into our analysis anyway. The quality of data we had to work with was also not great. Before investing in any of the recommended ETF, do verify all the details. If you spot an error, please let us know and we will do our best to fix it. 

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