Gold exchange-traded funds have become one of the most popular ways for investors to gain exposure to precious metals without the complexities of physical ownership. Gold ETFs are generally a good investment for investors seeking portfolio diversification, inflation protection and convenient gold exposure, but they come with limitations including management fees, counterparty considerations and the reality that gold produces no income, making them better suited as portfolio insurance than a primary growth vehicle. Understanding both the benefits and limitations of gold ETF investing helps investors make informed decisions about whether and how much gold exposure makes sense for their portfolios.
Are gold ETFs a good investment? That depends entirely on your investment objectives, time horizon and how gold fits within your broader financial strategy.
What is a gold ETF?
A gold ETF is an exchange-traded fund that tracks the price of gold, typically by holding physical gold bullion in vaults on behalf of investors. Each share represents a fractional ownership in the fund’s gold holdings.
How They Work: When you buy shares in a gold ETF, you’re purchasing a claim on a portion of the fund’s gold holdings. The ETF’s price moves in line with gold prices, providing exposure to gold’s performance without requiring you to store, insure or physically manage the metal.
Canadian Options: Canadian investors can access gold ETFs through major exchanges, with options including hedged funds that neutralize currency effects (converting USD-denominated gold prices to Canadian dollars) and unhedged funds that retain full exposure to both gold price movements and currency fluctuations.
Management Expense Ratios: Gold ETF fees typically range from approximately 0.20 per cent for basic unhedged funds to 0.55 per cent for hedged options. While modest, these costs compound over long periods and represent an ongoing drag on returns compared to a one-time physical gold purchase.
Why investors buy gold ETFs
Portfolio diversification
Gold’s low correlation to traditional stock and bond investments makes it a genuine diversification tool. When equity markets decline due to economic uncertainty, geopolitical tensions or financial crises, gold often maintains or increases in value.
This diversification benefit becomes particularly valuable during periods of extreme market stress when correlations between stocks and bonds can increase, reducing the effectiveness of traditional diversification.
For perspective on how gold has risen as a strategic asset, gold’s performance in recent years demonstrates its continuing role in modern portfolios.
Inflation and economic uncertainty
Gold has historically maintained purchasing power during inflationary periods, making it a popular hedge against currency devaluation and loss of purchasing power.
Recent Performance: Gold returned approximately 27 per cent in 2024, followed by an exceptional performance in 2025 driven by global economic uncertainty, trade tensions and aggressive central bank gold accumulation. As of May 2026, gold has reached record levels above $4,500 per ounce.
Easier access to gold exposure
Gold ETFs solve practical problems associated with physical gold ownership.
Key Advantages Over Physical Gold:
- No storage facility required;
- No insurance costs or security concerns;
- Easy purchase through standard brokerage accounts;
- Can be held in registered accounts including TFSAs and RRSPs; and
- Instantly tradeable during market hours.
Physical gold held directly cannot be placed in a TFSA without triggering significant tax penalties, making ETFs the practical solution for investors wanting gold exposure in tax-advantaged accounts.
Are gold ETFs a good investment?
Potential benefits of gold ETF investing
Liquidity: Gold ETFs can be bought and sold instantly during market hours through standard brokerage accounts. This liquidity far exceeds physical gold, which requires finding buyers, verifying authenticity and completing physical transactions.
Cost Efficiency for Active Trading: For investors who adjust gold allocations regularly, ETFs avoid the high spreads and transaction costs associated with buying and selling physical bullion.
Tax-Advantaged Account Access: Holding gold ETFs in TFSAs provides completely tax-free growth, while RRSP holdings defer taxes until withdrawal. This tax efficiency can significantly enhance long-term after-tax returns.
Registered Account Eligibility: Unlike physical gold, which triggers significant penalty taxes if placed directly in registered accounts, gold ETFs qualify for TFSA and RRSP investments.
Risks and limitations of gold ETFs
No Income Generation: Gold produces no dividends, interest or other income. Returns depend entirely on price appreciation, creating opportunity costs compared to income-producing investments.
Ongoing Management Fees: While modest individually, annual management fees compound over time. A 0.55 per cent annual fee on $100,000 over 20 years reduces returns significantly compared to direct gold ownership.
Counterparty Considerations: You hold a claim on gold rather than the physical metal itself. While established ETFs from major fund companies carry minimal practical risk, this differs from direct gold ownership.
Currency Exposure: Unhedged ETFs expose Canadian investors to USD/CAD exchange rate fluctuations. A strengthening Canadian dollar reduces returns even when gold prices rise in US dollar terms.
How gold ETFs compare to physical gold
Physical gold provides maximum ownership security, no counterparty risk and no ongoing fees, but requires storage, insurance and creates liquidity challenges. Transaction costs include dealer spreads, shipping and assay fees.
Gold ETFs provide convenience, liquidity and registered account eligibility, but involve ongoing fees, counterparty considerations and currency exposure decisions.
The Practical Trade-Off: For most investors, gold ETFs represent the practical choice for portfolio exposure, while serious collectors or those wanting genuine physical gold ownership may prefer bullion.
Alternatives to gold ETFs
For investors considering different approaches to gold and precious metals investing, comparing gold investment options including bars, coins and stocks helps evaluate which approach best fits your objectives.
Physical gold bullion and coins
Direct gold ownership through bars or coins provides genuine asset ownership without counterparty risk and no ongoing management fees.
Considerations:
- Higher transaction costs when buying and selling;
- Storage and insurance requirements;
- Cannot be held directly in registered accounts;
- Provides complete independence from financial system; and
- Best for long-term holders or those wanting genuine ownership.
Gold mining stocks
Shares in gold mining companies provide leveraged exposure to gold prices, as rising gold prices significantly improve mining company profitability and valuations.
Pros:
- Can provide dividends;
- Potential for returns exceeding gold price appreciation; and
- Available in registered accounts like ETFs.
Cons:
- Operational risks beyond gold price movements;
- Management quality significantly affects returns;
- Behave more like equities during market stress; and
- Require more analysis and monitoring than ETFs.
Royalty Companies: High-quality gold royalty companies often provide better risk-adjusted returns compared to traditional miners or holding physical gold, as they collect royalty payments without bearing direct operational risks.
Diversified investment portfolios
Rather than focusing specifically on gold, some investors achieve diversification and inflation protection through broader strategies that include quality businesses across different sectors.
Portfolio Integration: A well-constructed investment portfolio with quality businesses can provide inflation protection, growth and income without requiring significant commodity allocations.
When gold ETFs may or may not make sense
When gold ETFs may make sense
Portfolio Diversification: When your portfolio lacks assets that behave independently of traditional stocks and bonds, modest gold exposure can improve risk-adjusted returns.
Inflation Concerns: During periods of high inflation or concerns about currency devaluation, gold provides a tangible hedge that performs differently from financial assets.
Economic Uncertainty: When geopolitical tensions, trade conflicts or financial instability create market uncertainty, gold often provides ballast within investment portfolios.
Tax-Advantaged Accumulation: Using TFSA room for gold ETF exposure allows long-term accumulation with completely tax-free growth.
When gold ETFs may not make sense
Income Requirements: Investors needing regular portfolio income find gold contributes nothing to cash flow. Dividend-paying stocks or bonds better serve income requirements.
Pure Long-Term Growth: Over very long periods, quality businesses have typically generated significantly higher returns than gold. Growth-focused investors with long time horizons may find a limited role for gold.
High-Interest Rate Environments: When real interest rates are significantly positive, income-producing assets become more attractive relative to gold, which produces no yield.
Concentrated Gold Exposure: Investors already holding significant gold through jewelry, collectibles or physical bullion may have sufficient exposure without adding ETF positions.
Building a long-term investment strategy beyond market trends
Quality over commodity
Successful long-term wealth building typically centres on owning quality businesses that generate real value, grow earnings and compound wealth over time rather than relying heavily on commodity price movements.
Investment Perspective: Gold serves best as portfolio insurance, providing protection during crises and diversification benefits, rather than as a primary wealth-building vehicle.
Role in Overall Strategy: Most investors benefit from modest gold allocations (5-10 per cent maximum) that improve portfolio resilience without creating excessive drag on long-term returns from gold’s lack of income generation.
Avoiding trend-based decisions
Gold’s exceptional performance in recent years has attracted significant new investor interest. However, past performance – even exceptional performance – doesn’t predict future returns.
Key Principle: Investment allocation decisions should be based on strategic objectives and portfolio construction principles rather than recent performance chasing.
Professional portfolio construction
Building investment strategies that appropriately incorporate gold alongside quality stocks, bonds and other assets requires understanding how different investments interact across various market conditions.
Professional wealth management helps investors develop balanced approaches that incorporate gold’s protective characteristics within comprehensive strategies focused on long-term wealth building.
Frequently asked questions
How much gold should I hold in my portfolio?
Most institutional investors recommend modest gold allocations of 5-10 per cent for balanced portfolios. This range provides meaningful diversification benefits and some inflation protection without creating excessive drag from gold’s lack of income generation. Your specific allocation should reflect your investment timeline, risk tolerance, other portfolio holdings and income needs. Investors with substantial real estate or commodity exposure might need less gold, while those with purely financial asset portfolios might benefit from slightly higher allocations.
Should I hold my gold ETF in a TFSA or RRSP?
TFSAs provide tax-free growth, making them ideal for investments you expect to appreciate significantly. If you believe gold will continue rising, TFSA exposure maximizes after-tax returns. RRSPs provide immediate tax deductions and tax-deferred growth, which can be valuable if you’re in a high tax bracket now and expect lower rates in retirement. For most investors, maximizing TFSA contributions for gold exposure before using RRSP room is a reasonable approach, though your overall account allocation should consider all investment types, not just gold.
Are gold ETFs better than buying gold coins or bars?
For most investors, gold ETFs offer better practicality through easier buying and selling, lower transaction costs for regular purchases, registered account eligibility and no storage or insurance requirements. Physical gold suits investors wanting genuine ownership, maximum independence from financial institutions or long-term holdings where ongoing ETF fees would accumulate significantly. There’s no universally better option – the right choice depends on your investment purpose, timeline and preferences around ownership versus convenience.
How do gold mining stocks compare to gold ETFs for portfolio exposure?
Gold mining stocks provide leveraged exposure to gold prices, potentially outperforming during gold bull markets but also declining more during gold bear markets. They also offer potential dividends. High-quality gold royalty companies typically provide better risk-adjusted returns than both physical gold and traditional miners, collecting royalty payments without direct operational exposure. Gold ETFs provide cleaner exposure to gold prices themselves. The choice depends on whether you want direct commodity exposure or leveraged equity exposure with additional company-specific considerations.
Partner with avenue
Gold ETF investing represents one approach within a broader investment strategy, but successful long-term wealth building requires a comprehensive approach that goes beyond any single asset class or investment trend.
We understand that sound investment decisions prioritize quality and long-term value creation over responding to recent performance trends or market momentum.
Our approach focuses on building sustainable wealth through quality investments held for the long term, with risk management strategies that provide genuine protection rather than simply adding assets with recent strong performance.
Contact us to discuss how thoughtful portfolio construction can incorporate gold exposure appropriately while maintaining focus on your long-term wealth building objectives.
