AAAU vs. GDX: Is It Better to Hold Physical Gold or Invest in Gold Miners?

The Goldman Sachs Physical Gold ETF (NYSEMKT:AAAU) offers low-cost exposure to physical bullion, whereas the VanEck Gold Miners ETF (NYSEMKT:GDX) invests in a diversified basket of global mining companies.

While both funds allow investors to gain exposure to the gold market, they represent entirely different asset classes. One tracks the spot price of the physical commodity held in vaults, while the other tracks the shares of businesses that extract the metal from the ground.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Goldman Sachs fund is the more affordable option for investors seeking a simple gold play, featuring an expense ratio of 0.18%. This is significantly lower than the 0.51% charged by the VanEck fund.

Performance & risk comparison

What's inside

Goldman Sachs Physical Gold ETF is designed to track the spot price of gold by holding physical bars in a trust. Its portfolio consists of physical gold at 100.00% and the fund was launched in 2018. Because it holds the actual commodity rather than operational businesses, it avoids the risks associated with mining accidents, labor strikes, or corporate mismanagement. It offers a more direct correlation to the metal itself, which is reflected in its lower beta of 0.17 relative to the broader equity market. With $2.8 billion in assets under management (AUM), it provides efficient liquidity for bullion investors.

VanEck Gold Miners ETF provides exposure to 66 different holdings within the basic materials sector. Its largest positions include Agnico Eagle Mines at 11%, Newmont at 10.97%, and Barrick Mining at 7.72%. This fund, which was launched in 2006, tracks the MarketVector Global Gold Miners Index. Because these miners are businesses with operational costs and financial leverage, their stock prices can move more aggressively than the spot price of gold, potentially amplifying both gains and losses for investors.

For more guidance on ETF investing, check out the full guide at this link.

Which looks like the better buy

Gold remains a resilient investment amid economic uncertainty and is often seen as a defensive holding for long-term investors. But there are many ways to invest in the metal, and this comparison highlights two of them.

Goldman Sachs' AAAU fund holds physical gold bars, saving investors the hassle of managing the material themselves. Its price performance reflects the market price of gold, minus the ETF’s expense ratio. It's a convenient and straightforward way to bet on gold as a store of value. If you're looking for portfolio diversification and a defensive position in the value of gold, it could be a solid bet.

GDX, in contrast, holds more than 60 companies related to the gold mining industry. These are companies, not products, so they have operational expenses and business risks, but also upside potential and dividend payouts. To bet on a fund like GDX, you not only have to have conviction in gold as a valuable material, but also faith in the companies that are involved in the global gold mining industry. As is often the case in investing, this increased risk comes with increased potential reward. This fund may still be a way to diversify your portfolio, particularly if it's dominated by the major tech stocks of the day, and it clearly has more growth potential than AAAU, but you'll have to be willing to stomach some more volatility.

Sarah Sidlow has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.