How to choose gold ETFs? A comprehensive guide to investing in gold ETFs in Taiwan and the US

Gold is often referred to as a “hard currency,” capable of resisting inflation risks and serving as a safe haven in investment portfolios. Compared to directly holding physical gold or trading futures, Gold ETFs offer the advantages of trading convenience and low costs, making them the preferred choice for an increasing number of investors. However, the market is flooded with various gold ETFs, available in both Taiwan and the US, each with different features. Beginners often don’t know where to start. This article will comprehensively analyze the types, selection logic, and investment strategies of gold ETFs to help you find the most suitable gold ETF products.

Why Invest in Gold ETFs? Key Advantages at a Glance

Before diving into the classification and selection methods of gold ETFs, let’s first look at why this investment tool is so popular.

Extremely convenient trading, just like stocks

Gold ETFs are listed and traded on stock exchanges, with operations similar to buying and selling stocks. Open your trading app, place an order with a few clicks, and you can enter or exit the market anytime. In contrast, purchasing physical gold requires going through banks or gold merchants, which is much more cumbersome.

Significantly lower transaction fees

Buying physical gold involves paying 5%-10% in transaction fees and additional costs for safekeeping. Trading gold futures also requires a substantial margin deposit. Gold ETFs typically charge an annual management fee of only 0.2%-0.5%, offering a clear cost advantage.

A tool for risk diversification

Gold has low correlation with stocks and bonds. Allocating 5%-10% of your portfolio to gold ETFs can effectively reduce overall risk. Especially during bear markets, gold often rises against the trend due to its hedging properties, providing a buffer. Data shows that a reasonable allocation of gold assets can improve the risk-adjusted return of your investment portfolio.

High transparency of assets

Spot gold ETFs regularly disclose their gold reserves, allowing investors to see how much real gold backs their holdings. Other types of gold ETFs also actively disclose their portfolios and strategies, offering transparency far superior to other financial products.

Accessible entry threshold

Buying a gold bar may cost several tens of thousands of dollars, which can be a heavy burden for ordinary investors. Investing in gold ETFs requires only a few hundred dollars or even less, greatly lowering the entry barrier and enabling more people to participate in the gold market.

Currently, many investors are optimistic about the potential appreciation of gold in the coming years. Although gold prices have hit new highs between 2023 and 2024, central banks worldwide continue to increase their gold reserves, and economic uncertainties remain, all supporting the continued rise of gold prices.

What Types of Gold ETFs Are There? Their Features

Based on the underlying assets they track, gold ETFs are mainly divided into three categories:

Physical Gold ETFs — The Most Stable Choice

These ETFs directly hold physical gold, securely stored by professional custodians. Investors indirectly own the corresponding gold shares by purchasing ETF units. Because they are backed by real assets, their prices usually closely track international spot gold prices. Typical products include GLD (by SPDR) and IAU (by iShares) in the US.

Derivative Gold ETFs — Pursuing Leverage Gains

These products track gold prices through investments in futures contracts, CFDs, and other derivatives. They can offer leverage, amplifying gains; however, risks are also increased, with higher volatility, making them less suitable for conservative investors. Examples include leveraged 2x and inverse products based on futures.

Gold Mining Stock ETFs — Betting on Gold Companies’ Prospects

These ETFs invest in stocks of gold mining and exploration companies, such as VanEck Gold Miners ETF (GDX). Their prices are influenced not only by gold spot prices but also by company performance, industry risks, and mining costs. They tend to be more volatile than physical gold ETFs and are more suitable for investors willing to accept higher risks.

How Volatile Are Gold ETFs? What About Liquidity?

For investors seeking stable gold exposure, volatility is an important consideration.

Spot gold ETFs’ volatility depends on fluctuations in international gold prices. Historical data shows that gold’s volatility has been on a long-term downward trend. Between 2017 and 2022, gold’s historical volatility was significantly lower than that of oil, copper, US 10-year Treasury bonds, and even the S&P 500, highlighting its stability as a safe-haven asset.

However, during periods of heightened economic uncertainty, rapid shifts in central bank policies, or geopolitical events, gold prices can experience larger swings. The COVID-19 pandemic is an example where such volatility occurred.

In contrast, mining sector ETFs tend to be more volatile because the stocks themselves are inherently more volatile, compounded by industry-specific risks like rising extraction costs and operational difficulties.

Regarding liquidity, US-based ETFs like GLD and IAU are large and highly traded, making them some of the most liquid gold ETFs globally. In Taiwan, Yuanta S&P Gold ETF is the largest local gold ETF, with relatively good liquidity. Smaller products may have limited liquidity, affecting trading efficiency.

Gold ETFs vs. Gold CFDs: Which Should You Choose?

Investors often hesitate between ETFs and CFDs when investing in gold. Both have their pros and cons:

Gold ETFs — Suitable for medium to long-term investors

ETFs do not require margin deposits, carry no leverage risk when held, and do not have margin call concerns. Investors can hold them with confidence, waiting for gradual appreciation. Returns tend to be moderate, making them less suitable for aggressive traders seeking quick profits.

Gold CFDs — Suitable for short-term traders

CFDs allow leverage, with margin ratios typically ranging from 0.5% to 100%, enabling participation in larger trades with less capital. While potential gains are higher, so are risks. Daily overnight fees and transaction costs can accumulate with frequent trading.

In summary, if you believe in long-term appreciation and plan to hold for 3-5 years, gold ETFs are the better choice. If you want to capitalize on short-term volatility through intraday or swing trading, CFDs offer more flexibility.

How to Effectively Invest in Gold ETFs? Three Strategies

Once you’ve chosen your investment instrument, how can you maximize returns and minimize risks? Here are three strategies worth considering:

Strategy 1: Build a Diversified Portfolio

Don’t put all your eggs in one basket. Based on your risk tolerance, consider the following allocations:

• Risk-tolerant investors: 50% stock index ETFs, 25% gold ETFs, 20% bond funds, 5% other risk assets

• Risk-neutral investors: 42% bonds, 30% stock ETFs, 25% gold ETFs, 3% others

• Risk-averse investors: 40% bank deposits, 30% bonds, 15% stock ETFs, 15% gold ETFs

This approach allows participation in gold’s upside while safeguarding overall assets against volatility.

Strategy 2: Regular Fixed-Amount Investment (Dollar-Cost Averaging)

Set a fixed amount to invest at regular intervals (e.g., on paydays). This automates “buying less at high prices and more at low prices,” averaging costs over time. Even with short-term fluctuations, persistence over 3-5 years can yield good results.

This method is especially suitable for working professionals and beginners, as it requires minimal active management—just set up automatic deductions.

Strategy 3: Active Timing — Buy on Dips

Compared to passive dollar-cost averaging, this approach requires active market analysis. When gold ETF prices rise, buy less; when prices fall, increase your purchases. This demands some market insight and is more suitable for advanced investors.

Regardless of the strategy, set profit targets—typically 30%-50% gains are reasonable. Once achieved, consider taking profits to lock in gains. If you are particularly optimistic about a specific ETF, you can set higher targets or sell in stages.

Taiwan vs. US Gold ETFs: Which Is More Cost-Effective?

The market offers many gold ETFs, mainly in Taiwan and the US. Here’s a comparison:

Taiwan Gold ETF

The most well-known is Yuanta S&P Gold ETF, with assets of $2.55 billion, tracking the S&P Goldman Sachs Gold Excess Return Index, with a 5-year cumulative return of 34.17% and an annual management fee of 1.15%. As Taiwan’s largest gold ETF, it has decent liquidity and is suitable for beginners.

There are also leveraged and inverse products like Yuanta S&P Gold 2x ETF and -1 inverse ETF, designed for more experienced traders.

US Gold ETFs

The US market offers larger and more diverse options. GLD (SPDR Gold Shares) is the largest, with assets of $56 billion, tracking the physical gold price, with a 5-year return of 62.50% and a management fee of 0.40%. Its liquidity is unmatched.

iShares’ IAU has $26.7 billion in assets, with an even lower fee of 0.25%, and a 5-year return of 63.69%. Though less famous than GLD, its low costs and steady performance make it a popular choice.

Sprott Physical Gold Trust (SGOL) has $2.8 billion in assets, with a 5-year return of 64.36% and a fee of 0.39%. It allows investors to exchange ETF shares directly for physical gold, reducing risk.

Overall Comparison: US Gold ETFs Are Superior

In terms of size, liquidity, management fees, and historical returns, US gold ETFs tend to perform more stably. GLD and IAU, with their large scale, active trading, and low fees, are the most convenient ways to invest in gold. While Taiwanese ETFs are more accessible for local investors, they lag behind in product diversity and cost efficiency.

How to Choose a Gold ETF? Four Key Criteria

With so many options, how should investors select the right product?

Look at Issuer and Asset Size

Prioritize products issued by reputable, well-established financial institutions like SPDR, iShares, Vanguard. Also, check the asset size—larger assets mean better liquidity and easier trading.

Pay Attention to Tracking Index and Historical Performance

Review what index or price the ETF tracks—usually international spot gold or specific gold indices. Examine 3-, 5-, and 10-year returns and maximum drawdowns to assess risk. Avoid poor-performing or illiquid products unless you have strong reasons to believe they are undervalued.

Calculate Purchase Costs

Consider not only management fees but also trading costs like commissions and bid-ask spreads. Enter the market when gold prices are relatively low to reduce average costs. Avoid frequent trading to minimize transaction costs.

Assess Personal Risk Tolerance

Spot gold ETFs tend to be less volatile and suitable for conservative investors. Derivative and mining ETFs are more volatile and better suited for those comfortable with higher risks. Be honest with yourself about your risk appetite before choosing.

Final Recommendations

Gold ETFs have become an indispensable part of modern investment portfolios. Based on the comparison between Taiwan and US markets, US gold ETFs—especially GLD, IAU, and SGOL—are generally recommended.

As a beginner, thoroughly assess your risk tolerance before investing, and choose a portfolio that matches your profile. Remember, gold investment requires patience—think long-term for 3-5 years. Avoid frequent trading; instead, review your portfolio periodically. Gold has stood the test of time as a store of wealth. Use gold ETFs wisely to safeguard and grow your assets.