Perth Mint Gold ETF (ASX:PMGOLD)

The Perth Mint Gold ETF (ASX: PMGOLD) is one of Australia’s largest gold ETFs. However, it’s a unique ETF because it does not provide direct exposure to gold bars stored in a fault — it’s more like a derivative contract, backed by the West Australian government.

In this report, I take a quick look at the best gold ETFs in Australia, including the Global X Physical Gold ETF (ASX: GOLD), Perth Mint Gold ETF (ASX: PMGOLD) and BetaShares Physically Backed Gold ETF (Hedged) (ASX: QAU).

Gold price

You can click here to view the current gold price (the link opens in a new tab). Keep in mind, the gold price is usually quoted in US dollars. This is important to remember because if you are an Australian investor, you should also pay attention to the Australian-dollar price of gold. I’ve also included the total return of all gold ETFs further down the report.

3 standout ETFs

In this 2-minute video on gold ETFs (the link opens in a new tab) I explained the structure and style of Australia’s 3 most popular gold ETFs: GOLD, QAU & PMGOLD.

In short:

• The GOLD ETF from Global X is physically backed, unhedged and allocated.
• The QAU ETF from BetaShares is physically backed, hedged into Australian dollars and allocated.
• The PMGOLD ETF from Perth Mint is not physically backed but represents a right to buy gold from the Perth Mint, with a West Australian Government guarantee.

Gold ETFs performance 

Please note: the performance of the GOLD ETFs in the chart below isn’t perfect. At the time I’m writing this report, the historical share price of the GOLD ETF doesn’t take into account a 10-for-1 stock split that took place in June 2022. Every shareholder before the split got 10 shares for every 1 they already held. Please refer to the gold performance table further down the page, which uses data from the ASX.

What about MNRS & GDX? Aren’t they gold ETFs?

The VanEck Gold Miners ETF (ASX: GDX) and Betashares Global Gold Miners ETF (Hedged) (ASX: MNRS) are not true gold ETFs. MNRS and GDX invest in shares of gold mining companies. For this reason, the MNRS & GDX ETFs are very different to the three core gold ETFs: GOLD, QAU & PMGOLD.

The key difference between MNRS and GDX versus the other three true gold ETFs is that because MNRS and GDX invest in shares (rather than the actual gold itself) I believe their performance will be much more like a normal shares ETF — such as Vanguard Australian Shares ETF (ASX: VAS) or BetaShares Australia 200 ETF (ASX: A200). You can view the list of Australian shares ETFs.

So, in my opinion, this defeats the purpose of using them as a way to deflect volatility (i.e. lower risk) in a portfolio. In other words, if you consider investing in GDX or MNRS you should think of them as “risk on” investments and consider allocating them in your ‘shares bucket’ within your portfolio. For example, if you wanted to have 30% invested in Australian shares, these two ETFs would be part of that overall allocation.

Total return of gold ETFs

Source: ASX data, time period ending June 30, 2022.

Over time, I expect gold ETFs like PMGOLD, QAU and GOLD to have lower volatility and more price stability than GDX and MNRS because investors are not exposing themselves to specific company risks. For example, imagine you invest in Newcrest Mining (ASX: NCM) shares, one of Australia’s largest gold miners, because you ‘want to invest in gold’. By doing this you’re not only being exposed to the price of gold (which is Newcrest’s product) but also the execution of its management team, failures at its mine sites, exploration activity (good and bad), and so on.

This is not to say investing in gold mining companies or MNRS and GDX is wrong. Just that it’s a different experience to buying a true gold ETF.

Gold ETFs ranked by fees

As you can see above, most of the best gold ETFs have reasonably low fees, though PMGOLD’s unique ‘legal’ structure enables it to have the lowest management fee (MER), according to data from July 2022. You can see the effect of PMGOLD’s lower fees in the performance table above — it’s outperformed the GOLD ETF marginally over time because it has taken less away from investors in fees.

Risks of gold ETFs

Gold ETFs are relatively simple investment products. The ETF provider’s custodian stores the gold in a vault (in the case of Betashares and Global X) and you get units ‘tied’ to the gold bars issued to you via the exchange. However, they’re not risk-free by any means. Below is a brief summary of some of the unique risks. Please read the Product Disclosure Statements (PDS) of the ETFs before acting on this information.

• Performance risk. Gold ETFs are subject to many different types of external influences because, at the end of the day, gold stored in a vault doesn’t create value. Unlike say a company, which creates profits and can pay dividends, there are net holding costs with gold (storage, insurance, etc.). Economic influences such as increasing inflation, geopolitical uncertainty and currency fluctations will move the price of gold considerably. There is also the risk that gold does not provide any of the risk benefits during these periods.
• Holding costs. Gold ETFs rely on capital gains and so any distributions to ETF investors are not true ‘dividends’ like you would associate with a share or bond ETF.

How to use gold ETFs

The best gold ETF for one portfolio might not suit another portfolio because each of the three ASX-listed gold ETFs is quite unique. The key decision between GOLD and QAU is currency hedging.

For example, all else being equal, if you believe the Australian dollar is going to get weaker (i.e. US dollars will be worth more in, say, 12 months), you might choose the GOLD ETF from Global X because then you have your gold priced in US dollars. However, if you have the opposite view, the QAU ETF from Betashares might be better suited. Finally, many investors like the PMGOLD ETF because of its low fees (it is unhedged — like GOLD).

However, consider also that many investors will choose to have no gold ETFs — and they’ll probably be just fine over the long run.

We recommend gold ETFs inside Rask Core 🌏 but only because we know many of our members want our research on gold ETFs as they see it as a ‘risk off’ exposure (outside of bonds) in the short term (1-2 years). Personally, I find it very difficult to justify any type of meaningful exposure (e.g. more than 5%) to commodities (including gold) over time. That’s because the historical performance of shares/companies has been noticeably better. So the longer we plan to invest, I think it makes more sense to turn to other, more productive assets, such as shares.

To view the full range of ETFs available on the ASX, click here. Or to join us inside Rask Core 🌏 and get all of our premium ASX research and model portfolios, click here.

Cheers!

Owen Raszkiewicz

Founder of Best ETFs Australia, lead analyst of Rask Core