Gold Index Funds: Is It Worth Investing in Gold ETFs During 2024?

The Resurgence of Safe-Haven Asset Demand

The macroeconomic and geopolitical context of 2024 has rekindled interest in gold index funds as a defensive instrument. Global tensions in Ukraine and Gaza, combined with the possibility of political changes in the United States, have incentivized investors to seek hedges against expected volatility.

Simultaneously, the interest rate architecture presents a favorable scenario. There is a well-documented inverse relationship between debt yields and gold prices. As the Federal Reserve considers cuts to its benchmark rates, a depreciation of the US dollar is expected, making gold more affordable in international markets and stimulating demand. This phenomenon is reinforced by recent weakness observed in traditional fixed-income markets.

Capital Flows in Gold ETFs: A Market Paradox

According to data from the World Gold Council, gold index funds have experienced sustained net capital outflows over the past nine months. In February 2024, global withdrawals totaled $2.9 trillion, with North America responsible for $2.4 trillion. Europe reported outflows of $0.7 trillion, while Asia saw inflows of $0.2 trillion.

Despite these outflows, it is noteworthy that the gold price has been recovering since October 2022. This disconnect suggests that many investors took profits to reallocate capital into cyclical assets, particularly technology stocks and cryptocurrencies. However, institutional purchases by central banks have provided a fundamental demand floor.

Central Banks’ Defensive Strategy

71% of the 57 central banks surveyed in 2023 projected increasing their gold reserves over the next 12 months, a figure that rose ten percentage points compared to 2022. Major holders include the United States, Germany, Italy, France, Russia, China, Switzerland, India, and the Netherlands.

This dynamic reflects a concerning reality: the gradual loss of influence of the US dollar in foreign exchange reserves. Gold maintains characteristics that make it irreplaceable: security, guaranteed liquidity, historical stability, and universally recognized intrinsic value. These qualities position it as a trust anchor in finance.

Global Debt as a Critical Factor

The leverage level of developed economies has reached record highs since the 2008-2009 crisis. The United States has a public debt-to-GDP ratio of 129%, while Japan leads with 263.9%. The European Union and China still maintain more moderate ratios, but both are on an expanding trajectory.

This excessive accumulation of public liabilities has led to widespread loss of purchasing power in global fiat currencies. The Federal Reserve chairman publicly acknowledged that the US is on an unsustainable fiscal path, where debt grows faster than the economy. These factors significantly increase the relative attractiveness of gold ETFs as long-term capital preservation mechanisms.

Stable Composition of Gold Demand

Global gold demand comes from four diverse sources that combine in a counter-cyclical manner, generating structural stability. During Q4 2023, total demand reached 1,149.8 tons, distributed as follows:

• Jewelry: 581.5 tons
• Investment (including gold index funds): 258.3 tons
• Central bank reserves: 229.4 tons
• Technological applications: 80.6 tons

In the past 14 years, demand has rarely fallen below 1,000 tons. Supply, supported by mining and recycling, responds slowly to price changes, providing structural market balance.

Structure and Classification of Gold Index Funds

Gold ETFs are divided into two fundamental categories. Physically backed funds invest directly in bars stored in vaults of recognized financial institutions, allowing shareholders to own fractional parts of the metal without storage risks. Synthetic ETFs use derivatives (futures, options) to replicate gold performance, offering lower expense ratios but incorporating counterparty risk.

The main advantage of these index funds lies in their accessibility. Unlike physical gold bars, retail investors can participate with smaller capital, enjoying daily liquidity and no custody risks.

Analysis of the Top 6 Gold ETFs in 2024

1. SPDR Gold Shares ETF (NYSE: GLD)

This giant in the gold ETF market offers unmatched liquidity and a proven track record in tracking the metal. It directly tracks the price of bars stored in London under HSBC Bank USA custody. Manages $56 billion with an average daily volume of 8 million shares.

Its annual fee is 40 basis points (0.40%). The current price is $202.11 per share, with a 6.0% appreciation in 2024 to date. Since 2009, its cumulative performance is 146.76%, making it the second-best performer in the category.

2. iShares Gold Trust ETF (NYSE: IAU)

This gold index fund competes directly for market leadership. Offers exposure to daily price movements of bars backed physically by JP Morgan Chase Bank in London. Manages $25.4 billion with an average volume of 6 million shares.

Its cost structure is aggressive: just 25 basis points (0.25%) annually. The share price is $41.27, with a 6.0% gain this year. Its cumulative return since 2009 is 151.19%, making it the best performer in this period.

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

This physically backed ETF holds gold in secure vaults distributed between Switzerland and the UK. Has assets totaling $2.7 billion with a daily trading volume of 2.1 million shares.

Annual fees are just 17 basis points (0.17%). Trading at $20.86 per share, it is the most economical among market leaders. It has appreciated 6.0% in 2024 and has a total return of 106.61% since inception.

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

Physically backs its positions in vaults in the UK under custody of JPMorgan Chase Bank. With $614 million under management and a daily volume of 2.7 million shares, it maintains a cost structure of only 18 basis points (0.18%), significantly below the industry average of 63 basis points for commodity index funds.

It is priced at $21.60 per share, with a 6.0% increase in 2024. Its total return since inception is 79.67%.

5. SPDR Gold MiniShares ETF (NYSE: GLDM)

Represents an optimized version for retail investors of the massive GLD fund from State Street. Positioned as the most cost-effective gold physical ETF, charging only 10 basis points (0.10%) annually. Manages $6.1 billion in assets with an average volume of 2 million shares.

Its price is $43.28, with an annual gain of 6.1%. Since launch, its return is 72.38%.

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

Holds the record as the lowest-cost gold index fund, with an expense ratio of just 0.09%. Accumulates $1.2 billion in assets while trading 344,000 shares daily. Priced at $21.73, with a 6.0% appreciation so far this year.

Although launched recently in 2021, it already shows a return of 22.82%, demonstrating viability as an accessible alternative for retail investors.

Performance Comparison 2009-2024

The analysis of cumulative returns since 2009 reveals interesting patterns:

• Spot gold price: 162.31%
• iShares Gold Trust ETF (IAU): 151.19%
• SPDR Gold Shares ETF (GLD): 146.76%
• Aberdeen Physical Gold Shares ETF (SGOL): 106.61%
• Goldman Sachs Physical Gold ETF (AAAU): 79.67%
• SPDR Gold MiniShares ETF (GLDM): 72.38%
• iShares Gold Trust Micro ETF (IAUM): 22.82%

Cost-Benefit Evaluation in 2024

The decision to invest in gold ETFs should align with personal objectives and risk tolerance. Conservative investors will find these gold index funds a valuable defensive component. Those with higher risk appetite may prefer to concentrate on assets with higher return potential.

Gold ETFs serve specific functions: providing effective diversification, acting as a refuge during stock market turbulence, and maintaining historical value during inflationary periods. However, gold does not generate cash flows like dividends, and its price can be highly volatile in short timeframes.

What matters most is that gold is one of the most effective hedges against global market downturns. Considering that bullish cycles in technology show signs of exhaustion and the global debt architecture becomes unsustainable, gold index funds emerge as a relevant alternative for capital preservation.

Strategic Framework for Investment in 2024

Those considering incorporating gold ETFs should follow specific guidelines:

Clarity of objectives: Define purpose (defensive hedge vs. appreciation) and risk tolerance before allocating capital.

Multi-asset approach: Gold index funds work best as a complement to a diversified portfolio, never as a concentrated position.

Long-term horizon: Short-term volatility can be disorienting. Gold ETFs perform optimally in long-term holding strategies.

Macroeconomic context: Understanding interest rate trends, geopolitical tensions, and fiat currency cycles is essential for proper timing.

Concluding Perspective

The central question is not whether gold will rise in price, but whether governments will continue to expand the money supply without limits. Past trends suggest this will persist. An eventual reorganization of the international financial system could redefine the role of the gold standard versus fiat currencies.

Retail investors now have tools previously reserved for large institutions. Knowing the six main alternatives in fees, liquidity, and historical performance positions the small capitalist to make informed decisions. The final question remains: is it prudent to reserve a material portion of capital in these gold index funds as an anchor of preservation amid systemic uncertainty?