Gold ETF vs physical gold

How a gold ETF works structurally

A physically-backed gold ETF is a grantor trust that holds allocated gold bullion as the underlying asset. Investors buy shares of the trust on a stock exchange; each share represents a fractional ownership claim on the gold held in the trust. The trust does not lend, lease, or use derivatives — it holds allocated physical bullion at a named custodian, and the share price tracks the spot price minus accumulated expense ratio drag.

The major US-listed physically-backed gold ETFs are: **SPDR Gold Shares (GLD)** — sponsored by the World Gold Council, managed by State Street Global Advisors, custodian HSBC London; **iShares Gold Trust (IAU)** — managed by BlackRock, custodian JPMorgan Chase; **Aberdeen Physical Gold Shares (SGOL)** — managed by abrdn (formerly Aberdeen Standard), custodian JPMorgan Chase London/Zurich; **GraniteShares Gold Trust (BAR)** — managed by GraniteShares, custodian ICBC Standard Bank London; **VanEck Merk Gold Trust (OUNZ)** — managed by Merk Investments, custodian JPMorgan Chase, with optional physical-delivery to qualifying shareholders.

Each fund publishes a bar list — the specific gold bars held in the vault — and independent audit reports periodically. The bar lists for GLD and IAU each show tens of thousands of individual bullion bars by serial number, weight, and refiner. Snapshot as of `2026-Q2`.

Custody arrangements behind GLD, IAU, SGOL

**GLD** custody is at HSBC London. The metal is held in HSBC's London vault as allocated bullion — specific bars assigned to the SPDR Gold Trust, not commingled with other HSBC clients' holdings. The trust publishes its bar list on a daily basis.

**IAU** custody is at JPMorgan Chase, with bars held primarily in London and New York vaults. The trust's bar list is published periodically; the custodian is contractually required to maintain the bars in allocated form for the trust.

**SGOL** custody is at JPMorgan Chase in London and Zurich vaults. The Zurich vault is the differentiator marketed to investors who value Swiss-jurisdiction storage. The allocated-bullion arrangement is structurally similar to GLD's and IAU's.

All three custodians are LBMA-member bullion banks with regulated trust operations. The custodial arrangement is not the risk that physical-gold advocates sometimes claim — these are some of the most heavily-audited bullion holdings in the world. The structural question is whether the buyer values direct title to the metal in personal possession (physical) versus a regulated ETF share representing a claim on metal at HSBC, JPMorgan, or ICBC vaults.

Expense ratios

Annual expense ratios for the major physically-backed gold ETFs as of `2026-Q2` (approximate, verify against current fund prospectus): GLD at `0.40%/yr`; IAU at `0.25%/yr`; SGOL at `0.17%/yr`; BAR at `0.17%/yr`; OUNZ at `0.25%/yr` (plus delivery fees if exercised).

The expense ratio reduces the fund's tracking of the gold price by the annual rate — `0.40%/yr` for GLD means the ETF's net asset value drifts down `0.40%` per year relative to the gross spot price, accumulating over the hold period. On a 10-year hold, GLD's cumulative tracking drag is approximately `4%`. The lowest-cost competitors (SGOL, BAR) at `0.17%/yr` have approximately `1.7%` cumulative tracking drag over the same period.

Compare against physical-gold custody costs: physical bullion at allocated private-vault storage runs `$0.50-$1.20 per $1,000` per year, or `0.05-0.12%/yr` — meaningfully cheaper than the lowest-expense ETF on an annual basis. Physical at home with insurance is cheaper still. The ETF expense ratio is the cost of the brokerage-account convenience; physical custody can be cheaper on an annual basis if you do the work.

Tax treatment of ETF gains

**The collectibles rule**: The IRS treats physically-backed gold ETFs as collectibles for capital-gains tax purposes despite their security-form structure. Long-term capital gains (shares held >1 year) are taxed at the collectibles rate, capped at `28%` under IRC § 408(m)(3). Short-term gains are taxed at ordinary income rates. This is the same treatment as physical-gold sales — the ETF wrapper does not produce the more favorable `15%/20%` long-term capital gains rate that applies to most other securities.

**In an IRA or 401(k)**: Gold ETF holdings inside a tax-advantaged account are taxed under the wrapper's rules — Traditional IRA ordinary-income at distribution, Roth IRA tax-free on qualified distributions. The collectibles rule does not apply inside the tax-advantaged wrapper because no current taxation is occurring.

**Reporting**: Brokerages issue Form 1099-B for ETF share sales the same way they do for any other security. The collectibles treatment is applied at the holder's tax-return level on Schedule D, not by the brokerage.

Operational differences from physical

**Liquidity**: ETFs trade on stock exchanges with intraday liquidity comparable to any large-cap security. Physical bullion sales take days (online dealer) or are same-day at a local coin shop with a wider spread.

**Custody**: ETFs put the bullion in an institutional vault with HSBC/JPMorgan/ICBC. Physical lets you hold the metal yourself or place it at a depository under your title.

**Counterparty exposure**: ETFs introduce counterparty exposure to the custodian, the trustee, and the fund sponsor. Physical bullion in your possession has no counterparty exposure; physical at a depository introduces counterparty exposure to the depository only.

**Cost structure**: ETFs charge annual expense ratios. Physical bullion at home has no ongoing cost (beyond insurance); physical at a depository has storage fees comparable to or less than ETF expense ratios.

**Tax treatment**: Both are taxed as collectibles outside tax-advantaged accounts.

**Operational complexity**: ETFs require a brokerage account. Physical requires either personal storage or a depository relationship. The ETF is operationally simpler; the physical is more demanding but eliminates several layers of counterparty exposure.

**Convertibility**: OUNZ uniquely offers physical-delivery to qualifying shareholders at creation-unit size (`100 oz` increments). The other major ETFs do not offer retail redemption for physical bullion.