Best Gold and Commodity ETFs – How to Profit from Booming Prices

If that golden-oldie precious metal spinner Rumpelstiltskin could choose a year to come back from his eternal rest, it would likely be 2025.

That’s because gold and commodity prices have had a stellar year breaking records and boosting related stocks, ETFs and no doubt investors and princesses with long hair or short.

The spot gold price started the year alongside the discarded champagne corks and tilting Christmas trees at $2,634 and is now sitting at around $4,200. That’s after hitting a record high of $4,381 in November – see below:

The spot silver price has also been shining climbing from nearly $30 an ounce in January to $57 for the first time ever. The ‘devil’s metal’ as it is known is now up by more than 80% in the past year.

Copper has also been glinting hitting all-time high peaks of $11,200 a ton.

So, what’s been driving these increases?

Searching for a Safe Haven

Investors tend to seek the safe haven of gold and silver during times of economic and political uncertainty. That’s because they believe the value of a physical asset will hold better than equities and even cash during tough times.

That’s been true from ancient Egypt to English diarist Samuel Pepys burying gold, as well as some cheese, in his garden during the Great Fire of London in 1666.

Economic headwinds this year have included President Trump’s tariffs which have created global uncertainty, sticky inflation, relatively high interest rates and concerning data such as low consumer confidence and job losses. A weak U.S. dollar and central banks from around the world buying gold to build up their defensive coffers has also helped.

The Federal Reserve cutting rates and the expectations of further action to steady at least the U.S. economic ship have also brought more gold and silver investors onboard.

That’s because these metals tend to perform well in low-interest rate environments.

On the geopolitics front there have also been a number of events to force investors to ‘em hills such as the Ukraine/Russia war and conflict in the Middle East from Gaza to Iran.

Other factors boosting copper have been the movement of large amounts of the metal to U.S. warehouses in anticipation of Trump’s tariffs and leading to shortages elsewhere. Copper also plays a vital part in the energy transition, the growth of AI and has been helped by an increase in military spending and demand for items such as bullets.

These higher prices have helped stoke sector stock prices with gold and copper miner Barrick Mining (B) surging nearly 200% in the year-to-date. But investors don’t just have to invest directly into equities to take advantage.

There are a number of ETFs which also offer the prospect of strong returns.

Gold ETF Comparisons

The SPDR Gold Shares ETF – (GLD)

This ETF is uniquely positioned within the comforting sounding Physically Held niche, meaning that it is backed by actual gold bullion stored in secure vaults. This feature, says SPDR, provides investors with the confidence that their investment is grounded in tangible assets, rather than mere financial derivatives. It tracks the LBMA Gold Price PM, which refers to the benchmark price of gold set by the London Bullion Market Association during the afternoon auction, which takes place at 3:00 PM London time. Tea and cake are optional.

This price is established by a group of major bullion banks and serves as a global benchmark for the gold market.

GLD has $139.10 billion of Assets Under Management and an average daily trading volume of 10.79M. It has an expense ratio of 0.40% covering management, administration, insurance, and storage costs for the physical gold bullion backing the shares.

iShares Gold Trust (IAU)

IAU holds physical gold bullion. It means that the fund’s value is directly tied to the performance of gold itself, rather than derivatives or futures. IAU serves as a strategic asset for those looking to diversify their portfolios with a tangible hedge against inflation and economic uncertainty. The trust’s structure allows investors to participate in the gold market without the complexities of purchasing, storing, and insuring physical gold themselves. It also tracks the LBMA Gold Price PM.

The ETF has $64.40 billion of assets under management and an average daily trading volume of 10.01 million. It has an expense ratio of 0.25%.

Aberdeen Standard Physical Gold Shares ETF (SGOL)

It also directly invests in gold bullion and tracks the LBMA Gold Price PM.  SGOL has $7 billion of assets under management and an average daily trading volume of 6.34 million. It has an expense ratio of 0.17%.

VanEck Gold Miners ETF (GDX)

This ETF is designed for those looking to capitalize on the dynamic and often lucrative niche of gold miners. GDX has 46 holdings comprising a diverse portfolio of globally recognized mining companies that engage in the extraction and production of gold, offering a strategic investment opportunity tied to the precious metals market. By focusing on the gold mining niche, the fund allows investors to potentially benefit from the economic factors that influence gold prices, such as currency fluctuations, inflationary trends, and geopolitical tensions. It tracks the MarketVector Global Gold Miners Index.

GDX has $23.96 billion of assets under management and an average daily trading volume of 24.4 million. It has an expense ratio of 0.51% and a dividend yield of 0.49%.

What Investors Need to Consider

When it comes to investing in physical gold ETFs people need to be aware of the risks involved. Buying shares in these ETFs will never result in a gold bar with your initials on it being sent to your address in the first-class post. Investors don’t own a physical piece of metal to show off to admiring neighbors but instead a security that tracks the price of gold. The metal is owned by the fund itself not you.

It is the fund manager’s responsibility to store the physical gold in a secure vault, usually London or New York, looked after by a professional custodian.

The GLD, for example, has blue-chip custodians of its physical gold, JPMorgan Chase Bank (JPM) and HSBC (HSBC) Bank.

According to HanETF, the Federal Reserve Bank in New York is often a favoured location. Over 95% of the bullion is stored for foreign owners. Other central banks can also offer this, and it is estimated that they hold around a fifth of all the gold mined throughout history.

Bank of England

London has around 8,865 tonnes of gold in numerous vaults around the city, such as the Bank of England. The other vaults, owned by commercial banks such as J.P. Morgan and HSBC, are secret.

Investors may worry that this doesn’t offer them enough diversification, but be careful about straying too far when choosing a location or custodian.

Do your research. Look at the security of the vault and the custodian, is it safe from the likes of Tom Cruise and all those lasers and wires? Regulatory requirements of the jurisdiction as well as insurance coverage and regular auditing should also be studied.

Broader Commodity Exposure

Although other commodities such as energy and agriculture have been more volatile this year as a result of sticky inflation, tariffs, consumer confidence and geopolitics, it is always a good idea for investors to diversify.

You don’t want all your eggs in one basket, even this year with the well-publicised shortage in the US due to cases of bird flu.

Here are some more ETFs for some broader exposure:

Invesco DB Commodity Index Tracking Fund (DBC)

The DBC tracks the performance of the DBIQ Optimum Yield Diversified Commodity Index Excess Return, which includes a wide array of commodities such as energy, precious metals, industrial metals, and agriculture. By investing in futures contracts of these essential commodities, DBC provides a comprehensive avenue for investors seeking to hedge against inflation, diversify their portfolios, or gain speculative exposure to the commodity market’s potential growth.

It has $1.25 billion of assets under management, three holdings and a dividend yield of 4.85%.

The Invesco Optimum Yield Diversified Commodity Strategy No K-1 (PDBC)

The ETF encompasses a wide spectrum of commodities, including energy, metals, and agriculture, offering a robust hedge against inflation and diversification from traditional equity and fixed income investments. The fund employs an innovative optimization strategy to enhance yield by actively managing its futures contracts.

It has $4.53 billion of assets under management, two holdings and a dividend yield of 4.19%.

iShares Silver Trust (SLV)

The fund tracks the performance of the LBMA Silver Price. It has $27.38 billion of assets under management -see below:

Benefits of Commodity Investing

One of the main benefits of investing in commodity ETFs is that it can offer a hedge against inflation. That’s because commodity prices typically rise in tandem with inflation. In short, that means it doesn’t erode the value of your money.

Another key benefit is that supply and demand imbalances can occur as economies grow, technologies develop or geopolitical events such as a war in a major oil or wheat producing nation like Ukraine leads to significant price increases.

Investors also need to be aware of the dollar. Historically commodity prices drop when the dollar strengthens against other major currencies. The reverse happens when the dollar weakens.

It’s because the dollar is the benchmark pricing mechanism for most commodities. So always keep an eye out on how it can affect your commodity investments.

Volatility is also key. Commodity prices can be influenced by a host of factors, some which can occur overnight such as political unrest or bad weather such as floods or change in government policies.

Futures-based funds can add to that volatility. As explained by the Commodity Futures Trading Commission, unlike with stocks, a futures contract cannot be held forever in the hope that a fallen price will recover. Futures contracts expire, and contract holders must either deliver or take delivery of the underlying asset or close out their contracts by taking an offsetting position.

For energy commodities and associated futures contracts, risks are often related to supply and storage availability. For agricultural commodities and associated futures contracts, such as corn, soybeans, or wheat, the risks are often weather related. Meanwhile, metals such as gold, copper, and palladium and their futures contracts are affected generally by industrial and macroeconomic factors.

Takeaway

Gold ETFs tend to perform well in time of low interest rates and high inflation as a hedge. It can also act as a safe haven for your wealth in times of economic or political upheaval and uncertainty. They can be a useful part of a diversified portfolio either for long-term investing or short-term tactical bets.

There are plenty of alternatives in the commodity space with agriculture ETFs and multi-asset commodity strategies also providing inflation hedges, returns and diversification.

Even in a time when AI dominates, value can still be found in the physical world.