Gold and Gold ETFs: An Investment Strategy for 2024

Why the Gold Market Returns to the Forefront in 2024

The global macroeconomic reality has led many investors to reconsider their positions in precious metals. With rising geopolitical tensions, prospects of interest rate cuts by central banks, and an unprecedented level of sovereign debt, gold is emerging as an increasingly attractive safe-haven asset. Gold ETFs represent the most efficient and accessible way to participate in this market without the complications of storing physical bars.

Understanding the Dynamics of Gold in Financial Markets

Diversified and Stable Demand

Global demand for gold comes from four main sources that adapt according to the economic cycle: jewelry, investment, reserve accumulation by central banks, and technological applications. In Q4 2023, demand reached 1,149.8 tons distributed as follows:

• Jewelry: 581.5 tons
• Investment: 258.3 tons
• Central banks: 229.4 tons
• Technology: 80.6 tons

This diversification of demand sources ensures a stability profile that few assets can offer. Over the past 14 years, demand has rarely fallen below 1,000 tons, contrasting with the volatility seen in other markets.

The Central Bank Factor

A notable phenomenon is the intention of central banks to significantly increase their gold reserves. According to recent surveys, 71% of central banks consulted in 2023 planned to increase their holdings over the next 12 months, up from 61% in 2022. This trend is part of a broader pattern: the gradual diversification of foreign exchange reserves away from the US dollar.

What exactly is a Gold ETF?

A gold exchange-traded fund is an instrument that offers exposure to the precious metal’s price through two mechanisms: direct physical backing or synthetic tracking via derivatives. Physically backed ETFs hold actual bars stored in secure vaults of accredited institutions, while synthetic ETFs use futures contracts and options to replicate the spot price of gold.

The main advantage is accessibility: with small capital amounts, retail investors can participate in the gold market without managing storage logistics or security risks.

The Macroeconomic Context Favoring Gold ETFs

Unsustainable Global Debt

Public debt levels have reached concerning heights in major economies. The US maintains a debt-to-GDP ratio of 129%, while Japan leads with 263.9%. This accumulation of liabilities backed by fiat currency issuance has eroded the purchasing power of global reserve currencies.

The US Federal Reserve President has publicly acknowledged that the country is on an “unsustainable fiscal trajectory,” raising concerns about the long-term stability of the international financial system.

Inverse Relationship Between Interest Rates and Gold Price

There is a well-documented correlation between real interest rates (inflation-adjusted) and gold demand. When the Federal Reserve anticipates rate cuts, the dollar tends to depreciate, making gold cheaper in real terms for international buyers. Simultaneously, lower rates reduce the attractiveness of fixed-income instruments, channeling resources toward alternative assets like gold and other revaluation potential investments.

Capital Movements in Gold ETFs

Although it may seem paradoxical, gold ETFs have recorded net capital outflows over the past nine months according to reports from the World Gold Council. In February 2024, global outflows reached $2.9 billion, with North America accounting for $2.4 billion. However, these outflows have not negatively impacted prices; in fact, gold has consistently recovered since October 2022. This reflects that many investors have taken profits to redeploy resources into more profitable assets in the short term, such as technology and Bitcoin, without abandoning long-term gold holdings.

Analysis of the Main Gold ETFs Available in 2024

1. SPDR Gold Shares ETF (GLD - NYSE)

The market leader with $56 billion in assets under management. It operates with unmatched liquidity: daily volume of 8 million shares. The fund tracks gold bars stored by HSBC Bank USA in London, with an expense ratio of 0.40% annually. Current price: $202.11. 2024 performance: +6.0%.

2. iShares Gold Trust ETF (IAU - NYSE)

With $25.4 billion in assets and backed by JP Morgan Chase Bank, IAU is the low-cost option among large-scale gold ETFs. Expense ratio: 0.25%. Daily volume: 6 million shares. Price: $41.27. 2024 performance: +6.0%. Historically, IAU is the best-performing gold ETF since 2009 (cumulative return of 151.19%).

3. Aberdeen Physical Gold Shares ETF (SGOL - NYSE)

Specialized in gold stored in Swiss and British vaults. Assets: $2.7 billion. Daily volume: 2.1 million shares. Expense ratio: 0.17%. Most affordable among the main ETFs: $20.86. 2024 performance: +6.0%.

4. Goldman Sachs Physical Gold ETF (AAAU - NYSE)

Physically backed fund stored in the UK by JPMorgan Chase Bank. Net assets: $614 million. Daily volume: 2.7 million shares. Expense ratio: 0.18%, significantly below the industry average for commodity ETFs (0.63%). Price: $21.60. 2024 performance: +6.0%.

5. SPDR Gold MiniShares ETF (GLDM - NYSE)

A reduced version of the GLD fund with the most competitive cost structure: just 0.10% annual expenses. Assets: $6.1 billion. Daily volume: 2 million shares. Price: $43.28. 2024 performance: +6.1%. This option is ideal for investors seeking to minimize fees without sacrificing liquidity.

6. iShares Gold Trust Micro ETF (IAUM - NYSE)

The cheapest gold ETF on the market with an expense ratio of 0.09%. Assets: $1.2 billion. Daily volume: 344,000 shares. Price: $21.73. 2024 performance: +6.0%. Launched in 2021, it represents the most accessible alternative for retail investors.

Historical Performance of Gold ETFs (2009-2024)

Spot gold has yielded 162.31% since early 2009. Among the ETFs analyzed, IAU leads with 151.19%, followed by GLD (146.76%), SGOL (106.61%), AAAU (79.67%), GLDM (72.38%), and IAUM (22.82% since 2021). Performance differences mainly reflect the cumulative impact of expense ratios and fund launch dates.

Should You Invest in Gold ETFs Now?

The decision depends on your specific goals and risk profile. For investors with low to medium risk tolerance, gold ETFs offer:

Effective diversification: Gold maintains a low or negative correlation with other assets, acting as a buffer in diversified portfolios during market stress periods.

Inflation protection: Historical data show gold preserves purchasing power during inflationary cycles, even if current inflation is declining.

Safe-haven asset amid geopolitical uncertainty: Conflicts in Ukraine and Gaza, along with tensions among global powers, support the defensive demand for gold.

It’s important to recognize that gold does not generate income like dividends, and its price can experience significant short-term volatility. However, its ability to withstand declines in global markets and its role as a value anchor in stressed financial systems make it a valuable component of a long-term investment strategy.

Practical Recommendations for 2024

Define your objectives: Clearly establish whether you seek defensive coverage, diversification, or participation in potential metal revaluations.

Study the expense ratio: Differences of 0.30% in annual fees can amount to thousands of dollars in lost accumulated returns.

Assess liquidity: For large amounts, choose ETFs with daily volume over 2 million shares to minimize slippage.

Invest with a long-term perspective: Gold ETFs perform best as part of medium- to long-term strategies, not as short-term trading positions.

Monitor the macroeconomic context: The decision to increase exposure to gold should align with your interpretation of interest rate cycles, global debt trajectories, and geopolitical tensions.

The accessibility of gold ETFs allows even small investors to participate in a market that has historically preserved its value through the most severe financial crises. With knowledge of available options and a clear strategy, gold ETFs can be an important part of your portfolio in 2024.