I don't know about you, but to me, buying a bunch of gold bars and trying to figure out where to securely store them does not sound like an attractive way to invest.
These days, buying stock is easy.
You just set up an account with your brokerage app of choice, verify a payment method, and click a button to choose from thousands of investments.
Why shouldn't we be able to do that with gold?
The good news is you can, but there are two main options to consider: IAU and GLD.
The question is: How do you decide which one is better when they both essentially get the same returns, based on the price of gold?
After doing some research myself, I've concluded that IAU could be better for some situations while GLD makes more sense for others.
Let's take a look at which situations each one is optimized for, so you can decide for yourself which one to consider.
Note: This article is not meant to be financial advice. Please do your own research and consult a certified advisor.
Head-to-Head:
Both funds do the same thing:
- Hold physical gold bullion
- Track the spot price of gold (minus fees)
- No leverage, no mining risk, no earnings risk
So the decision comes down to cost, liquidity, and use case.
| Feature | GLD | IAU |
|---|---|---|
| Expense ratio | ~0.40% | ~0.25% |
| Share price | Higher | Lower |
| Liquidity | Very high | High |
| Assets | Larger | Smaller |
| Best for | Traders | Long-term holders |
Core Recommendation: iShares Gold Trust (IAU)
Why IAU Is the Better Long-Term Holder
1. Lower Expense Ratio (Compounding Matters)
- IAU: ~0.25%
- GLD: ~0.40%
That difference compounds quietly but meaningfully over 5–15 years — especially for an asset with no yield.
2. Smaller Share Price = Cleaner Position Sizing
- IAU trades at ~1/10 the price of GLD
- Easier to rebalance precisely
- Better for incremental adds
3. Same Underlying Asset, Same Custodian Class
- Both use institutional gold vaulting
- Counterparty and custody risk are effectively equivalent
Portfolio Verdict:
For most situations, I believe the best choice is IAU for strategic, long-term gold exposure.
When SPDR Gold Shares (GLD) Makes Sense
I would choose GLD only if one of these applies:
1. You Trade Around the Position
- GLD has slightly higher daily liquidity
- Tighter bid-ask spreads during stress
- Preferred by institutions and macro traders
2. Very Large Position Size
- For multi-million-dollar allocations, GLD’s depth can matter
3. Options Strategy
- GLD has deeper options markets
- Better for hedging or tactical overlays
Portfolio Verdict:
Better for tactical or trading-oriented gold exposure
What I Would NOT Do
- Own both — redundant exposure
- Treat gold as a growth asset
- Allocate more than 10% unless you’re explicitly hedging systemic risk
- Expect income or compounding from it
Gold’s role is an insurance + volatility dampener, not a growth engine.
FAQs
1. Why do investors own gold at all?
Gold is primarily used as:
- Inflation hedge (especially when real rates are negative)
- Currency hedge against USD debasement
- Crisis / tail-risk diversifier
- Portfolio volatility dampener
Gold is not a growth asset. It does not compound cash flows like stocks.
2. Is gold a good long-term investment?
Gold is best viewed as:
- A strategic allocation, not a primary return engine
- Historically keeps pace with inflation over very long periods
- Often lags equities during economic expansions
Best role: insurance + diversification, not wealth creation.
3. What actually drives gold prices
Key drivers:
- Real interest rates (most important)
- U.S. dollar strength
- Inflation expectations
- Geopolitical risk
- Central bank buying/selling
Rule of thumb:
- Falling real rates → bullish for gold
- Rising real rates → bearish for gold
4. Does gold protect against inflation?
Sometimes — not always.
- Works best when inflation is unexpected or out of control
- Performs poorly when central banks aggressively raise rates to fight inflation
Gold is more of a monetary hedge than a CPI hedge.
5. How much gold should be in a portfolio
Typical ranges:
- 0–3%: growth-focused investors
- 3–7%: balanced portfolios
- 5–10%: inflation- or crisis-concerned investors
Above 10% usually becomes a return drag over time.
6. Is gold better than bonds?
They serve different roles:
- Bonds = income + duration exposure
- Gold = no income, but inflation & crisis hedge
Gold can complement bonds, especially when bond yields are unattractive.
7. Is trading gold speculative?
Short-term gold trading is speculative.
Long-term gold allocation is risk management, not speculation.
8. What are GLD and IAU?
Both are physically backed gold ETFs:
- Each share represents fractional ownership of vaulted gold
- No leverage, no futures
- Track spot gold prices closely
9. Which is better for long-term investors?
IAU
- Lower expense ratio compounds meaningfully over the years
- Better for buy-and-hold allocations
- Ideal for retirement and strategic exposure
10. Which is better for short-term trading?
GLD
- Tighter bid/ask spreads
- Massive options liquidity
- Better for tactical trades or hedging
11. Do IAU and GLD track gold equally well?
Yes.
Tracking error differences are minimal.
Over time, fees are the main differentiator.
12. Are GLD and IAU taxed like stocks?
No.
They are taxed as collectibles in taxable accounts:
- Maximum federal long-term capital gains rate: 28%
- Short-term gains are taxed as ordinary income
This makes gold ETFs tax-inefficient in taxable accounts.
13. Where should gold ETFs be held?
Best accounts:
- Traditional IRA
- Roth IRA (especially if held long-term)
Least ideal:
- Taxable brokerage accounts (unless hedging)
14. Do these ETFs actually hold gold
Yes.
- Stored in professional vaults
- Audited regularly
- However, retail investors cannot redeem for physical gold
15. Is there counterparty risk?
Minimal but not zero:
- Custodians, trustees, and vault operators are involved
- ETFs are safer than paper futures, but not the same as physical possession
16. Should I own physical gold instead?
Depends on objective:
- Physical gold: disaster hedge, wealth preservation
- ETFs: liquidity, ease, portfolio balancing
Most investors are better served with ETFs unless preparing for extreme scenarios.
17. How does gold fit in a modern portfolio?
Gold works best when:
- Correlations rise across assets
- Inflation risk increases
- Confidence in fiat currencies weakens
Gold reduces portfolio volatility, but also reduces upside if overused.
Bottom Line
| Use Case | Pick |
|---|---|
| Long-term, low-cost hedge | IAU |
| Trading / options / tactical | GLD |
| Both together | No |
In other words, if you wanted to hold long-term, it may be better to go with IAU (in my opinion).
If you want to, say, day-trade, you might go with GLD.
This is not financial advice. Please do your own research to see what makes sense for your unique situation.
