By Gold price has gone parabolic, rising for five consecutive days, and reaching a new all-time high of $2,730. It has jumped by almost 32% this year, making it one of the best-performing commodities this year.
Gold has also soared by almost 85% in the last five years and by 118% since 2017, outperforming the likes of platinum and palladium.
Why gold is surging
There are three main reasons why the price of gold is in an unstoppable bull run, with analysts expecting it to hit $3,000 in the near term.
First, gold has jumped because of the surging US public debt, which has gone bonkers in the past few months. Data shows that the total public debt has jumped to over $35.5 trillion, a trend that is expected to continue.
Unfortunately, Donald Trump and Kamala Harris don’t have a solid plan to deal with the soaring deficits. A recent report estimated that Trump’s policies, including tariffs and tax cuts, would lead to a $7.5 trillion deficit in ten years. Harris policies, on the other hand, would lead to $3.5 trillion in deficits.
Other countries are also expected to keep growing their debt, which analysts expect will reach over $100 trillion soon. Therefore, gold is widely seen as a better alternative to fiat currencies when there is a major fiscal crisis.
Second, gold has soared because of the soaring demand from retail investors in countries like India, China, and the United States. Many people in China have shifted to gold after the collapse of the real estate market. The stock market has also been in a bear market in the next few years.
Many Americans have also turned to gold, as evidenced by the ongoing demand for gold sold in Costco.
At the same time, central banks have continued to accumulate gold in the past few years because of the US appetite for sanctions.
Third, central banks have started cutting interest rates in the past few months. The Fed has slashed rates by 0.50% and hinted to more cuts in the coming months. Other central banks like the European Central Bank (ECB) and Bank of England (BoE) have also slashed rates.
Read more: Gold crosses $2,700 for first time: What’s fueling the surge in yellow metal?
GLD vs IAU vs GDX ETFs
The SPDR Gold Shares ETF (GLD), iShares Gold Trust (IAU), and VanEck Gold Miners (GDX) are some of the biggest ETFs in the market.
GLD has over $77.48 billion in assets, while the IAU and GDX have over $32.9 billion and $16.7 billion in assets.
GLD and IAU ETFs have invested directly in gold. According to its website, the GLD has accumulated 888 tons or 28.57 million ounces, which are now valued at over $77.48 billion.
The IAU ETF, on the other hand, has accumulated over 12.12 million ounces of gold. It is based on the LBMA gold price.
On the other hand, the VanEck Gold Miners ETF is a fund with over $16.72 billion in assets. It has invested in the biggest mining companies in the industry.
Some of the biggest firms in the fund are Newmont, Agnico Eagle Mines, Barrick Gold, Wheaton Precious Metals, Franko-Nevada, Gold Fields, and Northern Star Resources. Most companies in the fund are from Canada, the United States, Australia, South Africa, and Brazil.
The three ETFs have done well in the past few years, helped by the strong gold prices. Data by SeekingAlpha shows that the GDX ETF has had total returns of 69.4% in the past five years. The GLD and IAU fund have risen by over 78.90% and 80.25% in the same period.
Read more: CSI 300 swings, Hang Seng drops amid market shifts while gold hits record high
Best gold ETF to invest in
So, which is the best gold ETF to invest in? One can invest in gold ETFs like GDX and IAU, which track the price of gold. Alternatively, one can invest in gold mining companies, which benefit from the soaring prices.
A case for the two sides can be made. For example, investing in the GDX ETF is a good one because of its dividend yield. Data shows that the GDX has a trailing dividend yield of 1.16% and a five-year CAGR of 40%.
The challenge, however, is that companies come with their internal challenges like debt and the rising cost of mining gold. The other issue is that the GDX has an expense ratio of 0.51%.
Therefore, analysts believe that the IAU is a better gold ETF to invest in. While IAU and GLD are similar, the former has a lower expense ratio of 0.25% compared to the GLD’s 0.40%.
The spread between 0.25% and 0.40% is about 0.15%, which is a big number. For example, if you have $100,000 to invest, allocating funds to the IAU ETF will cost you $250 a year, while buying GLD will cost $400.
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