Gold ETFs (GLD, IAU, GLDM, SGOL) offer cheap, liquid exposure to gold prices through a brokerage account, ideal for portfolio diversification with minimal hassle. Physical gold (coins, bars) provides direct ownership, no counterparty risk, and is the right answer if you specifically want metal in hand or an inflation hedge that survives a financial system crisis. Most retirees benefit from owning some of both: ETFs for the bulk of their gold allocation, physical for a smaller portfolio insurance role.
Gold ETF advantages: instant liquidity (sells like any stock), low expense ratios (GLDM at 0.10%, IAU at 0.25%, GLD at 0.40%), no storage or insurance costs, easy to hold in any standard brokerage or IRA, simple cost basis tracking. The ETF holds physical gold in vaults backing every share, when you sell, you receive cash, not metal.
Physical gold advantages: no counterparty risk (you don't depend on a fund manager, custodian, or financial system), direct possession (if held outside an IRA), no expense ratio drag, and a meaningful insurance role if you specifically worry about systemic financial risk. The downsides: dealer spreads (typically 4-8% premium over spot when buying, 1-3% discount when selling), storage and insurance costs, and the practical complications of selling at scale.
Tax treatment differs in a critical way: long-held physical gold is taxed at the 28% collectibles capital gains rate (not the 15% or 20% standard long-term rate), regardless of holding period beyond 1 year. Gold ETFs that hold physical metal (like GLD) also get the 28% rate. Gold mining stock ETFs (like GDX) get standard capital gains treatment. This collectibles tax treatment is often overlooked and can substantially change after-tax returns.
For most retirees, the right answer is a mix: roughly 70-80% of gold allocation in low-cost ETFs (GLDM is currently the cheapest at 0.10% expense ratio) for the diversification role, and 20-30% in physical gold (American Gold Eagles, American Gold Buffalos) for the insurance role. The mix gives you the cost efficiency of ETFs and the optionality of physical metal.
Key facts
- Gold ETF expense ratios: GLDM 0.10%, IAU 0.25%, GLD 0.40%, SGOL 0.17%
- Physical gold dealer spread: typically 4-8% premium when buying, 1-3% discount when selling
- Tax rate on physical gold (held 1+ year): 28% collectibles rate, NOT standard LTCG
- Tax rate on physical-backed gold ETFs (GLD, IAU): also 28% collectibles rate
- Tax rate on gold mining ETFs (GDX, GDXJ): standard 15% / 20% LTCG
- Storage cost for physical gold (home): potentially insurance-only ($50-$200/year)
Are gold ETFs safe?
The major physically-backed gold ETFs (GLD, IAU, GLDM, SGOL) are structured as grantor trusts that hold physical gold in vaults audited regularly. Operational risk is low. The main 'risks' are common to any ETF: tracking error vs spot price (typically very small for these ETFs), expense ratio drag over time, and the theoretical (but never realized) risk of fund-level mismanagement. For most investors, gold ETFs are equivalent in safety to any major equity ETF.
Can I hold gold ETFs in my regular IRA?
Yes, gold ETFs (GLD, IAU, etc.) are stocks for IRA purposes and can be held in any standard IRA, Roth IRA, or 401(k) that allows individual stocks. You don't need a self-directed IRA. This is the simplest and cheapest way to get gold exposure inside a retirement account, no special custodian, no depository fees, no wire transfers. Just buy the ticker.