Investing in Gold Index Funds: A Wise Decision for 2024?

Gold has maintained its position as a safe-haven asset for centuries, and today, gold index funds represent a modern and accessible way to participate in this market. Unlike owning physical bars, these instruments offer liquidity, low fees, and the ease of trading on stock exchanges throughout the trading session. But is it really worth investing in them this year? We will analyze the current context, available options, and what you should consider before making a decision.

2024 Gold Market Context: Geopolitical and Monetary Factors

The global macroeconomic outlook has generated renewed interest in gold index funds during the first months of 2024. Several factors converge to support this demand:

Persistent Geopolitical Tensions

Ongoing conflicts in Ukraine and Gaza, along with increasing frictions among global powers, have intensified the search for safe assets. During times of political and military uncertainty, investors naturally turn to gold.

Interest Rate Expectations

There is a well-established inverse relationship between the price of gold and interest rates. As the U.S. Federal Reserve considers rate cuts, a depreciation of the US dollar is anticipated, which could lower the international price of gold and boost global demand. Simultaneously, lower rates reduce the attractiveness of fixed income compared to alternative assets like gold funds or cryptocurrencies.

Capital Flows Dynamics: Net Outflows Offset by Price Strength

Paradoxically, according to figures from the World Gold Council(World Gold Council), gold index funds have experienced net capital outflows over the past nine months. Just in February 2024, approximately $2.9 billion was withdrawn globally, with North America accounting for $2.4 billion.

However, this dynamic has not negatively impacted prices. Gold has maintained its recovery trajectory initiated in October 2022, supported by strong demand from central banks and institutional purchases driven by geopolitical factors. Many investors have likely taken profits to reposition into other high-yield assets such as technology stocks and bitcoin.

Central Banks: Strategic Gold Reserve Accumulation

A long-term trend explaining much of gold’s appreciation since 2018 is the active accumulation of reserves by central banks worldwide. Of 57 central banking institutions surveyed in 2023, 71% projected increasing their gold reserves over the next 12 months, a 10 percentage point increase compared to 2022.

This strategy aims to diversify reserves away from the US dollar, ensure value stability, maintain liquidity, and guarantee financial security. Major holders include the United States, Germany, Italy, France, Russia, China, Switzerland, India, and the Netherlands.

Diversified Demand: Stability Factor

One of the main strengths of gold index funds as an investment instrument is that the demand for the underlying asset comes from multiple sources, creating a very stable profile. According to data from Q4 2023, global demand reached 1,149.8 tons, distributed as follows:

• Jewelry: 581.5 tons (the majority)
• Investment: 258.3 tons (including physical-backed fund purchases)
• Central Banks: 229.4 tons
• Technology: 80.6 tons

Over the past 14 years, demand has never fallen below 1,000 tons, while supply (mining and recycling) remains relatively inelastic in the short term.

Understanding Gold Index Funds: Types and Mechanisms

A gold index fund is an investment vehicle that tracks the price of the precious metal directly or indirectly. There are two main categories:

Physically Backed Funds: Hold actual bars in secure vaults of trusted financial institutions. Each share represents a fraction of shared ownership of the stored gold. This structure allows exposure without the security and storage risks of physical metal.

Synthetic Funds: Invest indirectly using derivatives (futures, options) to replicate gold’s price. They offer lower expense ratios but introduce counterparty risk.

Inherent Advantages of Index Funds:

• High liquidity during stock exchange hours
• Significantly lower fees than actively managed mutual funds
• Access with minimal initial capital
• Transparent cost structure (gross expense ratio + broker commissions)

The 6 Main Gold Index Funds in 2024

1. SPDR Gold Shares ETF (NYSE: GLD)

The market leader with assets under management of $56 billion. Tracks gold bars stored in London under HSBC custody, with a daily volume of 8 million shares. The annual fee is 40 basis points (0.40%). Trades at $202.11 per share, up 6.0% in 2024.

2. iShares Gold Trust ETF (NYSE: IAU)

Another major player with $25.4 billion in managed assets. Offers a more competitive fee of 25 basis points (0.25%) and physical backing stored by JP Morgan Chase in London. Trades 6 million shares daily, at $41.27, also up 6.0% this year.

3. Aberdeen Physical Gold Shares ETF (NYSE: SGOL)

With $2.7 billion in assets, this fund holds gold in Swiss and British vaults. Offers one of the lowest fees in the sector, 17 basis points (0.17%). Trades at just $20.86 per share, making it the most accessible option, with a volume of 2.1 million shares and an annual gain of 6.0%.

4. Goldman Sachs Physical Gold ETF (NYSE: AAAU)

With $614 million in net assets, this JPMorgan Chase-backed fund offers institutional confidence. Its fee of 18 basis points (0.18%) is well below the industry average of 63 basis points. Trades at $21.60 daily and has increased 6.0% in 2024.

5. SPDR Gold MiniShares ETF (NYSE: GLDM)

A low-cost version of the popular GLD with $6.1 billion in assets. Charges only 10 basis points (0.10%) annually, trading 2 million shares daily. Trades at $43.28, up 6.1% this year.

6. iShares Gold Trust Micro ETF (NYSE: IAUM)

The lowest-cost gold fund on the market, with an expense ratio of only 0.09%. Holds $1.2 billion in assets while trading 344,000 shares daily. Trades at $21.73 per share and has risen 6.0% during 2024.

Historical Performance: 2009-2024 Comparison

Since early 2009, the performance of these instruments has been:

• Spot Gold: 162.31%
• iShares Gold Trust ETF (IAU): 151.19% (best performance)
• SPDR Gold Shares ETF (GLD): 146.76%
• Aberdeen Physical Gold Shares ETF (SGOL): 106.61%
• Goldman Sachs Physical Gold ETF (AAAU): 79.67%
• SPDR Gold MiniShares ETF (GLDM): 72.38%
• iShares Gold Trust Micro ETF (IAUM): 22.82% (since its launch in 2021)

Is It Worth Investing in Gold Index Funds This Year?

The answer fundamentally depends on your investor profile. For those with low or moderate risk tolerance, gold index funds can be a valuable diversification component. For aggressive investors, the allocation should be more modest.

Key Considerations:

Portfolio Diversification: Gold adds stability when other asset classes experience volatility. In an environment where the tech rally shows signs of exhaustion, this feature becomes especially relevant.

Inflation Hedge: Historically, gold maintains its purchasing power during periods of high inflation. Although inflation has declined, central banks remain cautious about rate cuts, justifying hedging.

Global Debt Context: Public debt levels have reached historic proportions. The US maintains a debt-to-GDP ratio of 129%, Japan 263.9%, while China and the European Union grow gradually. Federal Reserve Chair Jerome Powell has explicitly warned that “the United States is on an unsustainable fiscal path” where “debt is growing faster than the economy.”

In scenarios where a debt crisis or reorganization of the international financial system occurs, gold index funds would be among the most effective protections available to investors.

Limitations to Remember: Gold does not generate income like stock dividends. Its price can be volatile over short horizons. However, it is recognized as an asset that best withstands declines in global markets.

Practical Guide: How to Invest in Gold Index Funds

1. Set Clear Objectives: Establish specific investment goals and assess your actual risk tolerance before allocating capital.

2. Effective Diversification: Gold index funds should complement, not replace, a balanced portfolio with multiple asset classes.

3. Adopt a Long-Term Horizon: Given short-term volatility, consider these funds as long-term protection strategies, not speculation.

4. Conduct Contextual Research: Macroeconomic and geopolitical conditions determine entry opportunities. Although gold is a refuge, some moments are more or less favorable.

5. Compare Technical Features: Examine expense ratios, backing type (physical vs. synthetic), liquidity, and daily volume before choosing.

Final Reflection

The central question is not simply whether to invest in gold index funds, but how much capital to allocate considering your specific situation. The main advantage is accessibility: small investors can participate with minimal initial capital.

Data shows that central bank reserves are strengthening, demand remains stable from multiple sources, and geopolitical factors persist. In a context where governments have dramatically increased debt and fiat currencies are losing purchasing power, gold index funds offer a proven defensive alternative.

The final decision depends on each investor, after considering their particular context, financial goals, and risk appetite.