When is the right time to join gold ETFs in 2024?

The current geopolitical context and expectations of changes in interest rates have renewed many investors’ interest in gold ETFs as a wealth preservation instrument. However, the question most ask is whether there truly is a good time to enter this type of asset.

The current gold market landscape and its drivers

In recent months, demand for gold as a safe-haven asset has gained importance due to persistent geopolitical tensions and uncertainty about the future of monetary policy. Paradoxically, there have been net capital outflows from some gold ETFs, yet the price of the precious metal has shown a sustained recovery since October 2022.

According to data from the World Gold Council, in February 2024, $2.9 billion was withdrawn from these instruments worldwide, with North America responsible for $2.4 billion. However, this mainly reflects profit-taking by investors who repositioned their funds into other assets with higher short-term returns.

Global demand for gold comes from diversified sources. In Q4 2023, it reached 1,149.8 tons distributed among: jewelry (581.5 tons), investment (258.3 tons), central banks (229.4 tons), and the technology industry (80.6 tons). This demand diversity provides structural stability to the asset.

Why central banks continue to bet on gold

A key factor for the outlook of gold ETFs in 2024 lies in central banks’ intentions. Surveys conducted by the World Gold Council reveal that 71% of the 57 central banks surveyed in 2023 planned to increase their reserves over the next 12 months, representing a 10 percentage point increase compared to 2022.

This trend reflects a reserve diversification strategy, gradually reducing dependence on the US dollar. The top 10 gold holders include the United States, Germany, Italy, France, Russia, China, Switzerland, India, and the Netherlands.

Understanding the mechanisms of gold ETFs

There are two main categories: those backed by physical bars stored in insured vaults, and synthetic ones that use derivatives. The former offer greater transparency and lower counterparty risk, while the latter may have slightly lower expense ratios.

The cost structure of a gold ETF mainly includes the annual expense ratio and broker commissions. Liquidity is usually high, allowing for quick buying and selling during trading hours, unlike physical gold purchases.

The six main competitors in the industry for 2024

Leaders by liquidity and volume

SPDR Gold Shares (GLD) remains the undisputed leader with $56 billion in assets under management and a daily volume of 8 million shares. It operates with a 0.40% annual fee and is currently trading at $202.11 per share, showing a 6.0% gain so far this year.

iShares Gold Trust (IAU) is the preferred alternative due to its low expense ratio (0.25%) and managed assets of $25.4 billion. With a daily volume of 6 million shares and a price of $41.27, it has also appreciated by 6.0% in 2024.

More affordable price options

For investors seeking entry points with lower initial capital, Aberdeen Physical Gold Shares (SGOL) trades at only $20.86 per share, maintaining a competitive fee of 0.17% annually. Goldman Sachs Physical Gold (AAAU) offers a similar cost (0.18%) at a price of $21.60, both reflecting a 6.0% increase in the period.

Ultra-low-cost alternatives

SPDR Gold MiniShares (GLDM) represents the most economical option among the giants, charging just 0.10% in annual fees. With $6.1 billion in assets and a price of $43.28, it has gained 6.1% in 2024.

iShares Gold Trust Micro (IAUM) closes the list as the lowest absolute cost gold ETF (0.09% annual expense) and more accessible in price (21.73 dollars per share), although it has been on the market since 2021.

Historical performance: long-term perspective

Historical analysis since 2009 reveals the differentiated performance of these instruments. Spot gold has returned 162.31% over this period, with IAU as the best-performing ETF at 151.19%, followed by GLD at 146.76%. SGOL reached 106.61%, AAAU 79.67%, GLDM 72.38%, while IAUM, being newer, has yielded 22.82% since its inception.

Global macroeconomics and systemic risks

There is a macroeconomic context supporting the investment thesis in gold. The debt levels of major economies have risen dramatically: the United States maintains a public debt-to-GDP ratio of 129%, while Japan leads with 263.9%. China and the European Union show manageable but steadily growing levels.

The Federal Reserve Chair publicly acknowledged that the United States “is on an unsustainable fiscal path” where “debt is growing faster than the economy.” This reality raises legitimate questions about the architecture of the current international monetary system.

In this scenario, gold ETFs are seen as valuable tools for investors seeking protection against potential reconfigurations of the global financial system.

How to make the right decision in 2024

Clearly define your financial goals. Before allocating capital to gold, you should set specific objectives and assess your true risk tolerance. Conservative investors may allocate significant portions, while those seeking maximum returns will likely prefer other asset categories.

Integrate gold into a diversified strategy. The precious metal should not dominate your portfolio but complement it. Diversification among stocks, bonds, cryptocurrencies, and gold provides a more resilient balance.

Adopt an extended time horizon. Short-term fluctuations in gold prices can be significant, but historically, the metal has preserved value over long periods. Consider gold ETFs as medium- to long-term positions.

Stay attentive to economic cycles. Gold behaves differently depending on the macroeconomic context. Periods of high inflation, geopolitical uncertainty, or debt crises typically favor its performance.

Final reflection

The real advantage of accessing gold through these exchange-traded funds is that even retail investors can build positions with limited capital. Management costs have decreased considerably, and liquidity allows for quick repositioning if circumstances change.

Is 2024 the time to start or increase your exposure to gold? The answer depends on your personal situation. But considering global debt, persistent geopolitical tensions, and the possibility of exchange rate volatility, completely ignoring gold ETFs as a defensive long-term component could be a diversification mistake. Ultimately, the decision rests with you as an investor.