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Gold ETFs: What are the best gold ETFs UK investors should focus on?

Gold ETFs are a popular option for UK investors, but if you are new to investing, you may not be aware of them or what they are. This blog is all about the gold ETF UK market. We will not only explain what gold ETFs are but why they might be the right choice for you, how to go about acquiring them, and which products are the best.

Gold ETFs: What are the best gold ETFs UK investors should focus on? – Summary Table

🤓 What does ETF stand for?Exchange Traded Fund
❓ What is a gold ETF?A gold ETF is a fund that consists of one asset only, and that asset is gold
💸 Can I buy gold in the UKYou sure can, as it is not against any law
🏆 What is the best way to invest in gold now?A gold ETF ISA is the best solution right now

What is a gold ETF?

The initials ETF stand for “Exchange Traded Fund.” ETFs contain many different stocks and bonds and are managed by experts as a single fund on various stock exchanges around the world.

However, a gold ETF is a fund that consists of one asset only, and that asset is gold. But you don’t own any gold. Depending on the type of gold ETF, it will either directly track the gold price or be an investment in a company in the gold mining industry.

In line with ordinary ETFs, the company that issues gold ETFs purchases gold bullion or the stocks of companies operating in the gold market. As an investor, you then buy shares in the gold ETF, whose values go up or down in accordance with the price of gold or the company’s stock value.

The gold price often rises even when ordinary stocks and shares prices fall. Investing in gold is often thought of as something of a haven in turbulent times.

How gold performed in 2021 across world currencies

Last year (2021), investors bought gold ETFs in record numbers. The first five months saw investors purchase £23 billion worth of gold ETF stocks and shares. Research carried out by gold.org confirmed that this smashed the previous record for the same period in 2020, which stood at around £17 billion. It’s no wonder that gold ETF UK investments are drawing more attention.

According to the prediction from the managers of two of the biggest ETFs, the optimism on the gold price is still in the early stages. Mid-November 2021 saw gold have its best week as investors queued up to purchase it as a hedge against rising inflation forecasts. The UK is set to follow, which can only be good for gold ETF UK investing.

Below is a table, courtesy of  Bloomberg, ICE Benchmark Administration, World Gold Council showing how Gold performed across the leading currencies in 2021.

2021 returnEnd of year priceYearly averageAnnual HighAnnual Low
AUD (oz)1.8%2.4902.3962.5662.194
CAD (oz)4%2.3092.2562.4762,125
CHF (oz)-1.1%1.6501.6441.7341.570
EUR (oz)3.3%1.5941.5211.6491.417
GBP (oz)-3.1%1.3381.3081.4311.221
INR (10g)-2.6%43.21042.75745.65139.730
JPY(G)6.7%6.6866.3506.8685.885
RMB (G)-6.7%370.2373.1403.8353.2
RUB (g)3.4%4.3354.2634.6273.996
TRY (oz)67.7%23.52215.99932.42312.396
USD (oz)-4.3%1.8061.7991.9431.684
ZAR (g)4.1%928855950801

Key: AUD – Australian Dollar; CAD -Canadian Dollar; CHF – Swiss Franc; EUR – European Euro; GBP – Great Britain Pound; INR – Indian Rupee; JPY – Japanese Yen; RMB – Chinese Yuan; RUB – Russian Ruble; TRY – Turkish Lira; USD – United States Dollar, and ZAR – South African Rand

Gold ETFs versus gold ETCs

As well as Exchange Traded Funds (ETFs), you can get Exchange Traded Commodities (ETCs), but what you may ask is the difference between the two?

Gold ETF UK and gold ETC UK products are very similar. However, the way they are structured is different.

While an ETF buys or sells the particular product it is designed to track or its futures, an ETC doesn’t do the same thing. Instead, it is underwritten by a bank as collateral against a physical commodity (in this case, gold) to reduce the underwriter’s default risk. In the majority of instances, the different structure has no real impact on the returns.

Debunking the myth about owning gold in the UK

Many people are under the impression that it is illegal to buy or own gold here in the UK. They are misinformed. It is not against the law, nor has it ever been. As a UK resident, you can legally buy and keep any precious metal, including gold. But it is worth bearing in mind that physical gold is subject to capital gains tax, although gold coins produced by the Royal Mint are not.

Globally, China is the biggest consumer of gold, followed by India. After its independence, the Indian government passed the 1965 Gold Control Act, which prohibited citizens from owning gold bars or coins. It meant that owners had to convert any gold they held into jewellery and then declare it to the authorities.

It resulted in the blooming of a black market for gold, and in the end, in 1990, the Act was removed (although gold import duty came into being), and ever since, the people have been able to trade gold like other countries.

As a side note, Australia (the second-biggest producer of gold on the planet) passed a law in 1959 allowing the government to confiscate gold. The law was demolished in 1974.

Physical gold (gold bullion) is, of course, notoriously difficult and risky to ship, store, and divide into small units. But gold ETF UK products are a neat way around those problems.

The royal mint physical gold ETC

The Royal Mint Physical gold ETC is one of the best physical gold ETF UK products in which you can invest. It is, in fact, the only gold ETP (Exchange Traded Product) that is issued and backed by a European sovereign mint facility.

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The gold that the Royal Mint produces also complies with London Bullion Market Authority’s Responsible Gold Sourcing Policy – a top sustainable gold policy that relates to ethical trading and responsible sourcing.

The best gold ETF UK products

There are many products from which to choose, so what is the best gold ETF for UK investors at the moment? We’ve only just started 2022, so it’s best to look back at last year, and the top five products for 2021 were:

  • The Gold and Energy CopyPortfolio – considered to be the best for a diversified portfolio of gold ETFs
  • The iShares Gold Trust ETF – considered to be the best for tracking the spot price of gold
  • The SDPR Gold ETF UK – thought to be the best overall
  • The Sprott Physical Gold Trust – deemed to be the best for redeeming bars of gold bullion
  • The VanEck Vectors Gold Miners ETF – the best gold mining ETF

Let’s take a quick look at each one of the above in a little more detail.

The gold and energy copyportfolio

Many gold ETF UK products focus on physically-backed funds, where the provider buys and stores the assets – with your share being reflected by the stock price of the gold exchange-traded fund. But if you’d like to take things to the next level, it could be worth considering the Gold and Energy Copyortfolio.

It’s a portfolio that contains 8 separate ETFs allowing you to gain exposure to gold and wider energy markets.

The iShares gold trust ETF

Another possibility is the iShares Gold Trust ETF. This ETF closely tracks the spot price of gold. It is also backed by physical gold. The gold is stored in vaults in various locations worldwide to hedge against currency fluctuations. It means that you can invest in gold futures in a very easy and cost-effective way.

The SDPR gold ETF UK

This is considered by many in-the-know to be one of the best gold ETF UK products on the market today. It is the biggest gold ETF product in the industry. Again, it is backed by physical gold, presenting you with the opportunity to get exposure to rising prices without actually owning the commodity.

The sprott physical gold trust ETF

Close to its cousins, the previously mentioned SPDR and iShares ETFs, the provider invests in real gold bullion. The difference with the Sprott is that it provides you with the chance to redeem your investment in physical gold. However, it does mean that you need to own the equivalent of 400 ounces of gold at a current cost in excess of £500,000.

The vaneck vectors gold miners ETF

Another ETF option is companies directly involved with the mining of gold. There are hundreds of them, many of which are small with no guarantee of success.

By selecting this option, you will be investing in 51 various gold mining stocks and shares. As well as some of the small fries, it also covers larger operations such as Barrick Gold, Franco Nevada, Gold Fields, Kirkland Lake, Newmont, and Royal Gold.

How to invest in gold ETF UK products

There are many ways of investing in gold. You can invest in bullion coins such as Krugerrands and Britannica. You can buy gold bars through a bank or bullion brokerage. But the costs and risks of investing in physical gold can be quite high, which is why many people invest in gold ETF UK products.

Have you considered a gold ETF UK ISA?

Investing in a gold ETF ISA is probably the easiest, safest and least volatile way of investing in this precious metal. You can follow the same procedure as you would for taking out any ETF.

The only thing you must bear in mind is that even the best gold ETF UK ISA is no different to any other kind of Stocks and Shares or Commodity ISA in as much as there is a certain amount of risk involved. As with any form of investment, if you are not already an experienced investor, you should talk to an independent professional wealth management company such as Moneyfarm.

FAQ

What is the best ETF to buy in the UK?

There is no best ETF to buy in the UK. It all depends on your risk tolerance, the type of ETF you want to invest in, and the return on each ETF.

How can I invest in gold in the UK?

In the UK, you can invest in gold by buying physical gold (gold bullion/jewellery). You can use gold ETFs or ETCs, gold-mining stocks, gold sovereign bonds, and gold futures/CFDs to invest in gold in the UK.

Is gold ETF safe to invest in?

Gold is safe to invest in. Gold is considered a safe investment because it is used as a hedge to protect against currency fluctuation and inflation.

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