Posted in:

The Best Gold ETFs on which UK Investors should Focus

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 gold ETFs in the 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.

Are gold ETFs listed on the stock exchange?Yes, gold ETFs are listed on the LSE
Do I own the physical gold in a gold ETF?No, you don’t own the physical gold in a gold ETF
Do gold ETFs pay dividends?Yes, if the gold ETFs are equity-based
Can I withdraw my gold from an ETF?No, you can’t withdraw gold from an ETF

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 the World Gold Council, an international industry trade organization formed by the world’s leading gold mining companies that created the first gold ETF and pioneered gold exchange-traded funds such as the SPDR Gold Shares (GLD) and Gold Accumulation Plans, 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 ETFs UK investments are drawing more attention.

According to the prediction from the managers of two top gold ETFs, the chief gold strategist of SPDR ETF, George Milling-Stanley, and the CEO of GraniteShares, Will Rhind, stated that the demand for gold is high and the outlook on gold in 2022 is positive due to rising inflation. Mid-November 2021 saw gold have its best week as investors queued up to purchase it as a hedge against rising inflation forecasts in the US, but also globally. The rise in UK inflation is set to follow, which can only be good for gold ETF UK investing.

Below is a table, courtesy of Bloomberg, ICE Benchmark Administration, and the World Gold Council shows how Gold performed across the leading currencies in 2021 as of 30 December 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 ETFs and gold ETCs in 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

There is a myth that gold is only for wealthy investors, however, this is inaccurate. As a UK resident, you can legally buy and keep any precious metal, including gold and ordinary investors can start out with small amounts of physical gold in ingots or coins. 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.

According to the World Gold Council, China became the biggest consumer of gold in 2013, 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 ETFs in the 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.

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.

There are many products from which to choose. According to buyshares.co.uk, going by trading volumes, 5 of the best gold ETF for UK investors are:

The SPDR gold ETF UK

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

The Vaneck vectors gold miners ETF

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

If you select the Vaneck vectors gold miners ETF 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.

The iShares gold trust ETF

Another option is the iShares Gold Trust ETF. This ETF closely tracks the spot price of gold. It is 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 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 physical gold trust ETF is that it provides you with the chance to redeem your investment in physical gold.

However, you need to own the equivalent of 400 ounces of gold at a current cost in excess of £500,000. Also, physical transporting gold and storing gold yourself is not only risky but expensive.

The gold and energy copyportfolio

Many gold ETFs products available in the UK 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 Copyportfolio.

This portfolio contains 8 separate ETFs allowing you to gain exposure to gold and wider energy markets. Having 8 ETFs gives you a good spread, but is it enough in terms of diversification?

As with any investment, the price of gold can do down as well as up. Any form of investing, even gold, carries a certain amount of risk.

Understanding the Risks and Volatility in Gold Investments

Investing in Gold ETFs is often considered a safe haven, especially during economic downturns. However, it’s crucial to understand that they are not entirely risk-free.

Market volatility can significantly impact the value of gold, and consequently, the ETFs that track it. Factors such as geopolitical tensions, inflation rates, and currency fluctuations can lead to sudden spikes or drops in gold prices.

Investors should also be aware of the management fees associated with these investment vehicles, as they can eat into profits over time. Additionally, the liquidity of a gold ETF can vary, making it potentially difficult to sell your investment quickly at market value. Diversification is key; relying solely on gold ETFs can expose your portfolio to unnecessary risks. Therefore, it’s advisable to consult with financial experts to fully grasp the volatility factors and inherent risks before making an investment decision.

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 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 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.

Very tedious listing – 1) the content is NOT balanced = only the benefits are highlighted, the risks are not clear at all and 2) Factual statement issue – according to whom are these the best? where are the graphs showing a benchmark of their performance versus peers?

Investing made easy with Moneyfarm Share Investing

Suppose you are looking to invest in both Gold and non-gold shares. In that case, Moneyfarm’s Share Investing platform offers an uncomplicated entry into stock market trading, accessible through both a web interface and a mobile application. This platform permits the direct acquisition and disposal of shares. It encompasses a broad spectrum of individual UK stocks, ETFs, and UK mutual funds, enabling participation in various market sectors and investment styles.

Additionally, the platform provides the option to invest in a globally diversified, expertly curated portfolio, offering numerous choices to match your investment strategy and financial aspirations. Our service is developed with a focus on long-term investment, combining cutting-edge technology and professional advice from our investment consultants. This method aligns your portfolio with your personal values and financial goals, offering a thorough perspective of your investments for effective decision-making.

Moneyfarm’s Share Investing platform is tailored to facilitate your investment journey, whether you opt for familiar companies, explore different sectors, delve into ETFs, or extend your reach with our UK Mutual Funds, delivering a customized and knowledgeable investment experience.

FAQ

How can I invest in gold?

There are several ways to invest in gold. You can invest in gold jewellery, physical gold bullion and coins, gold mining and distributing stocks and shares, gold futures and options, and gold exchange-traded funds (ETFs) and mutual funds. You can also hold gold investments in investment accounts such as SIPPs.

When should you buy gold?

There is no perfect time to buy gold. However, investors often view precious metals like gold as a good hedge against inflation and a safe haven for their wealth during uncertain economic conditions. During times of financial crisis, investors tend to look towards gold because gold tends to increase in price during these situations.

Why should I invest in gold ETFs?

Investing in gold ETFs allows you to buy shares of companies that trade in gold and gain exposure to the gold industry without actually buying the physical gold itself. If you’re not wealthy enough to buy physical gold, then investing in a gold ETF gives you access to the same benefits.

 

Did you find this content interesting?

You already voted!

*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.