Gold ETFs Explained: GLD, IAU, GLDM & IAUM
Straight answer
A gold ETF lets you own gold’s price without holding the metal. The big physically-backed funds — GLD, IAU, GLDM, and IAUM — each hold real bars in a vault, and your shares track the spot price minus a small annual fee. The cheapest funds (GLDM at 0.10%, IAUM at 0.09%) suit buy-and-hold investors; GLD’s deep liquidity suits active traders. The catch: the IRS treats most of these as collectibles, so long-term gains can be taxed up to 28%, and you never get to take possession of the metal.
Gold ETFs are the simplest way to get gold exposure inside a brokerage or retirement account — no coins, no safe, no dealer premium. But they are not all the same, and an ETF is not the same thing as owning gold. Here is how the major funds work and how to pick between them.
How physically-backed gold ETFs actually work
A physically-backed gold ETF is a trust that buys and stores real gold bullion. The fund holds allocated bars in a secured vault, and each share represents a fractional claim on that metal. When you buy a share, you are buying a sliver of a pile of gold sitting in London or New York.
Because the gold is real and the share count is tied to it, the fund’s price closely tracks the spot price of gold — minus the fund’s annual expense ratio, which is skimmed off the metal over time. That fee is why a share of one of these funds slowly represents slightly less gold each year. There is no dividend and no interest; gold produces no income, so the only return is the change in the metal’s price.
Large institutions (called authorized participants) keep the share price aligned with the gold value by creating and redeeming big blocks of shares. For you, the practical result is simple: the ETF moves almost exactly with gold, all day, and you can buy or sell it like a stock.
The four main funds — and their expense ratios
Four physically-backed funds dominate the US market. They split into two families: the SPDR funds (GLD and its cheaper sibling GLDM) and the iShares funds (IAU and its cheaper sibling IAUM). Within each family, the original fund is bigger and more heavily traded, while the newer “micro” version costs far less to hold.
| Ticker | Annual expense ratio | Best for |
|---|---|---|
| GLD (SPDR Gold Shares) | 0.40% | Active traders who want maximum liquidity and tight spreads |
| IAU (iShares Gold Trust) | 0.25% | A mid-cost, very liquid alternative to GLD |
| GLDM (SPDR Gold MiniShares) | 0.10% | Buy-and-hold investors who want a low fee and a low share price |
| IAUM (iShares Gold Trust Micro) | 0.09% | The cheapest option for long-term holders |
Why the cheap micro funds suit buy-and-hold
For someone holding gold for years, the expense ratio is the cost that compounds against you. The gap between GLD’s 0.40% and IAUM’s 0.09% is about 0.31% a year. On a $50,000 position, that is roughly $155 a year — every year — for what is essentially the same metal in a similar vault. Over a decade, the difference is meaningful. If your plan is to buy and sit, the cheaper funds (GLDM, IAUM) are the rational default, and their lower per-share prices make it easier to buy in small, even amounts.
Why GLD’s liquidity suits active traders
GLD trades enormous volume, which means very tight bid-ask spreads and a deep options market. For a trader moving in and out frequently, the cost that matters is not the annual fee but the spread paid on every transaction — and there, GLD’s liquidity can save more than its higher expense ratio costs. If you are holding for days or weeks, the fee barely registers; if you are holding for years, it does. Match the fund to your holding period.
The tax wrinkle: gold ETFs as collectibles
This is the part most people miss. For tax purposes, the IRS generally treats physically-backed gold ETFs the same way it treats a gold coin — as a collectible, not an ordinary security. That means your long-term capital gains (on shares held over a year) can be taxed at a maximum rate of 28%, rather than the 0%, 15%, or 20% long-term rate that applies to stocks.
If your ordinary income tax rate is below 28%, you generally pay your ordinary rate instead — so the 28% is a cap, not a flat charge. But for higher earners, a long-term gold ETF gain can be taxed more heavily than a long-term stock gain. This is one reason some investors hold gold ETFs inside a tax-advantaged account, where the year-to-year tax question goes away. The treatment of futures-based and some structured gold funds can differ. None of this is tax advice — the rules turn on your specific situation, so confirm the details on gold and taxes with a qualified tax professional before you sell.
How gold ETFs differ from mining ETFs and futures funds
“Gold ETF” gets used loosely, and the differences matter. There are three very different things wearing that label.
Physically-backed ETFs (GLD, IAU, GLDM, IAUM) hold actual metal and track the gold price. This is what most people mean.
Gold mining ETFs (GDX, GDXJ) hold no metal at all. They own shares of gold-mining companies. These move with gold over time, but with leverage and noise: miners carry operating costs, debt, management risk, and country risk, so they can swing far more than the metal — up and down. When gold rises 10%, a miner fund might rise 20% or fall on a bad earnings report. They behave like stocks, not like gold. We cover this in our guide to gold mining stocks and ETFs.
Gold futures funds hold contracts to buy gold at a future date rather than metal in a vault. They can drift away from spot over time because of the cost of rolling expiring contracts forward, and they often carry different (sometimes more favorable) tax treatment. They are a specialist tool, not a simple way to own gold.
What a gold ETF does NOT give you
An ETF is a clean, cheap, liquid way to track gold’s price. It is not gold in your hand. Two honest limits:
- You want physical possession — coins or bars you can hold, store, or hand to someone. Retail ETF shareholders generally cannot redeem shares for metal; only giant authorized participants can.
- You are buying gold specifically to escape counterparty risk — the whole appeal of physical metal for some buyers is that it depends on no fund, custodian, or financial system. An ETF reintroduces a custodian, a trust structure, and a brokerage between you and the gold.
- You distrust the financial system in a true crisis and want an asset that works even if your broker does not.
If those points describe you, physical metal may fit better — weigh the trade-offs in physical gold vs. ETFs. For most ordinary investors who just want gold’s price movement in a portfolio without storage hassle, an ETF is the more practical choice. Neither is “right”; they answer different questions.
Is GLD or GLDM better?
They hold similar gold in a similar structure, but GLDM charges 0.10% versus GLD’s 0.40%, making GLDM the better choice for long-term holders. GLD’s much higher trading volume gives it tighter spreads and a deep options market, which favors active traders. Match the fund to your holding period.
Do I pay 28% tax on gold ETF gains?
Possibly. The IRS generally treats physically-backed gold ETFs as collectibles, so long-term gains are taxed at your ordinary rate up to a 28% cap — higher than the 0–20% on stocks. If your rate is below 28%, you pay your ordinary rate. Confirm with a tax professional.
Can I redeem ETF shares for actual gold?
As a retail investor, no. Only large authorized participants can create or redeem shares for metal, typically in blocks worth millions. If you want gold you can hold, buy physical coins or bars instead.
Is a gold mining ETF the same as a gold ETF?
No. Funds like GDX and GDXJ hold mining-company stocks, not metal. They tend to move with gold but amplify it and carry company-specific risk, so they behave like volatile stocks rather than like the metal itself.