Gold ETF Investment Guide: How to Choose Between US Stocks and Taiwan Stocks? The Complete Strategy is Here

Gold is renowned as a “hard currency,” capable of resisting inflation and diversifying risk. Compared to traditional gold investments, Gold ETFs democratize gold investing through modern fund structures, offering flexible trading and low costs, making them the preferred choice for an increasing number of investors. This article will delve into the types of gold ETFs, their investment advantages, and compare high-quality options in the Taiwan and US stock markets.

What exactly are Gold ETFs? An in-depth analysis of the three main types

Gold ETFs are exchange-traded fund products that track gold price movements. Since gold prices tend to be relatively stable, their volatility is usually lower than stock ETFs, making them a relatively prudent asset allocation tool.

Based on their underlying assets, gold ETFs are mainly divided into three types:

Physical Gold ETFs: Directly hold physical gold, stored by professional custodians, with investors indirectly owning the corresponding gold shares. Typical examples include GLD (SPDR Gold Shares) in the US.

Derivative Gold ETFs: Invest through gold futures contracts, contracts for difference (CFDs), and other derivatives, with investors trading and adjusting contracts based on market conditions. Examples include U.S. products like UGL (ProShares Ultra Gold), which are leveraged.

Gold Mining Stock ETFs: Open-ended index funds that closely track specific gold mining industry indices, holding stocks of gold miners. For example, GDX (VanEck Gold Miners ETF) in the US.

Why is investing in Gold ETFs becoming more popular?

High trading convenience: Gold ETFs are traded directly on stock exchanges, with operations similar to buying and selling stocks. Opening trading software and a few clicks are enough to complete transactions, without complicated procedures.

Clear cost advantages: Physical gold requires paying 5%-10% in handling fees and storage costs; futures investments require large margin deposits. In contrast, management fees for gold ETFs are generally only around 0.2%-0.5%, making them cost-effective.

Excellent risk diversification: Gold has a low correlation with common assets like stocks and bonds. Allocating 5%-10% of a portfolio to gold can effectively diversify risk and improve overall returns. When stock markets decline, gold often rises countercyclically due to its safe-haven properties.

High transparency: Physical gold ETFs regularly disclose their gold reserves, allowing investors to understand the backing physical assets. Other types of gold ETFs also disclose their holdings and trading strategies.

Accessible thresholds: Buying physical gold bars may require tens of thousands of dollars, whereas gold ETFs can be purchased for hundreds of dollars or less, significantly lowering entry barriers for ordinary investors.

Most investors favor gold ETFs mainly because of expectations that gold prices will continue to rise. Despite record highs in 2023-2024, market institutions remain bullish on the future. Key supporting factors include ongoing increases in global central bank gold reserves and persistent economic uncertainties worldwide.

How do gold ETF volatility and liquidity look?

The volatility of gold ETFs depends on the assets or indices they track. ETFs based on physical gold are closely linked to spot gold prices, but during periods of increased economic uncertainty, monetary policy adjustments, or geopolitical events, gold prices can experience significant fluctuations.

Historical data shows that gold’s volatility has been on a long-term downward trend, rising only during severe market shocks like the COVID-19 pandemic. Over the five-year period from 2017 to 2022, gold’s historical volatility was significantly lower than that of assets like oil, copper, 10-year government bonds, and the S&P 500 index.

It is important to note that gold ETFs based on mining company stocks (e.g., GDX) tend to be more volatile. These products are affected not only by gold price movements but also by stock market trends, individual company performance, mining costs, and industry-specific risks.

Gold ETFs vs Gold CFDs: How to choose?

For long-term holdings, gold ETFs are recommended, as they are more suitable for investors seeking market performance. Short-term traders and those aiming for quick profits may prefer gold CFDs, which allow leverage, flexible trading strategies, and broader market opportunities.

US and Taiwan gold ETF comparison

Selected Taiwan Gold ETFs

Selected US Gold ETFs

US vs Taiwan: Which is more worth investing in?

In terms of capital scale, liquidity, cumulative returns, and risk control, US gold ETFs perform relatively more stably.

GLD’s advantages: As the world’s largest gold ETF, with assets of $56B, highest liquidity, and a management fee of 0.40%, it is a mainstream choice among US ETFs. Its 5-year return is 62.50%.

IAU’s lowest cost: With a management fee of only 0.25%, it is the lowest among the three, though less well-known than GLD, with a near-equivalent return of 63.69%, making it especially suitable for beginners.

SGOL’s unique advantage: Offers physical gold redemption options, reducing loss risk, but has lower liquidity and a smaller asset size ($2.83B).

Compared to this, Taiwan gold ETFs generally have higher management fees (around 1.15%) and leverage products like positive 2x and inverse 1x are not suitable for beginners.

Gold ETF investment strategies: Three winning tips

Tip 1: Scientific allocation, risk diversification

Build your portfolio based on risk tolerance:

Aggressive investors: Stock index ETF 50%, Gold ETF 25%, Bond funds 20%, Derivatives 5%

Balanced investors: Bond funds 42%, Stock index ETF 30%, Gold ETF 25%, Derivatives 3%

Conservative investors: Bank deposits 40%, Bond funds 30%, Stock index ETF 15%, Gold ETF 15%

Tip 2: Fixed regular investment, smoothing costs

Invest a fixed amount in gold ETFs on a set date each month (e.g., payday). This method allows investors to buy less when prices are high and more when prices are low, averaging costs over time and reducing market volatility impact. The key is to stick with a long-term investment of 3-5 years to see compounded benefits.

Tip 3: Timing with high and low

Combine regular investments with active adjustments—adding more when gold prices fall, reducing when they rise. This requires understanding gold price fluctuations and is more suitable for advanced investors.

Profit-taking is equally important: Set a profit target of 30%-50%, and once reached, sell in parts or all to lock in gains. If optimistic about the market, you can also raise profit targets or take profits in stages.

Gold ETF selection guide

Issuer and size: Prioritize products issued by reputable large institutions; larger assets mean better liquidity, facilitating buying and selling at any time.

Tracking index and historical performance: Focus on 3-year returns and maximum drawdowns. International spot gold prices are the mainstream tracking index. Avoid products with poor past performance unless there are strong reasons to believe they are severely undervalued.

Cost considerations: Purchase at relatively low prices to reduce management and transaction fees from frequent trading. US ETFs have a clear advantage with low expense ratios.

Key takeaways

Gold ETFs provide investors with a convenient and cost-effective way to invest in gold. In the comparison between US and Taiwan markets, US gold ETFs (especially GLD and IAU) are more recommended due to their large scale, low costs, and high liquidity.

Before investing in gold ETFs as a beginner, assess your risk tolerance and choose a suitable portfolio. Patience is essential—gold ETF investing is about long-term holding, and maintaining a 3-5 year horizon allows the power of compound interest to fully manifest.