What is the best way to invest in gold - ETFs or gold miners?

Important information - investment values and income from investments can go down as well as up, so you may get back less than you invest.

Gold has climbed to another all-time high, breaking $5,000 for the first time in its history.

Political tension, a weak US dollar, worries about inflation, and soaring debt levels have all pushed central banks and investors towards the precious metal. 

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But how can you actually invest in gold?

It is possible for retail investors to buy physical gold. The Royal Mint, for example, sells coins and bars ranging from £100 to £100,000. Such investments come with extra costs and complications, however, like insurance and storage.

As a result, most investors choose financial instruments to get exposure to the metal.

The most direct way to do this is via exchange traded funds (ETFs) (sometimes labelled exchange traded commodities or ETCs) which are listed on stock exchanges and bought and sold like shares. The best will mirror movements in the gold price very closely and do so for a low charge. These are often described as ‘physical’ gold ETFs, meaning they are backed by actual gold held in vaults.

Alternatively, you can gain exposure by buying the shares of gold mining companies. It is common to do this via a fund that specialises in the sector.

• Read more of our articles on gold

Weighing up the options

Each method of investing in gold produces different results - even though both are influenced by the price of the metal itself. Miners tend to generate more volatile returns, meaning they will sometimes do better than the gold price, and sometimes do worse.

An increase in the gold price should automatically boost the earnings of gold miners. In fact, a rise in the gold price should have an amplified effect on their profits. This is because miners have significant fixed costs, so any jump in the price they can sell their gold for equates to a larger percentage rise in their earnings.

Consider this simplified example. A miner produces $100 worth of gold by expending costs of $50 - leaving a profit of $50. If there is a 50% rise in gold prices, the amount it can sell the metal it produces for rises to $150 - leaving $100 profit after its costs have been deducted. Therefore a 50% rise in the price of gold equates to a 100% rise in its profits. This is known as operational gearing.

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It doesn’t always work out this way. Sometimes a soaring gold price bypasses miners entirely. The stars aligned in 2025, however - as shown in the graph below.

This graph compares the annual performance of the Ninety One Global Gold Fund, a popular fund of gold mining shares, with the iShares Physical Gold ETC, an exchange traded fund which aims to track the gold price. Both feature on our Select 50 list of favourite funds.

In recent months, miners have shot ahead of physical gold. Over longer periods of time, however, miners have proved far more volatile than physical gold and have often underperformed. This has been due to operational issues in the mines, cost inflation, and unwise acquisitions.

As always, past performance is not a reliable indicator of future returns.

Is gold still worth holding?

Gold is seen as the ultimate safe haven, which stands firm when other assets tumble. It has also been described as a ‘confusion trade’, which investors turn to when uncertainty is rife. We saw this during the global financial crisis, the pandemic and now, during President Trump’s latest stint in office.
 
Governments are flocking to buy gold. It overtook the euro as the second largest reserve asset for central banks last year and investors are enthusiastic. Gold ETF flows recorded their strongest year on record in 2025, according to the World Gold Council.¹

Gold is prone to steep rallies and deep slumps, however, and some investors are worried that the price has peaked.

For most investors, gold is only ever going to be a minority position within their portfolio - but that still leaves a wide range of possible allocations. For investors whose main objective in holding gold is to hedge against extreme uncertainty, a common allocation is between 5% and 10%. Any less than that is unlikely to make the difference you are looking for when volatility strikes.

Outlook for miners 

Miners have enjoyed a fabulous few months. Their profits have been turbocharged by operational gearing, and they have been returning lots of cash to shareholders.

What happens next is heavily dependent on the gold price. However, miners can also trip themselves up. In the past, they grew overconfident when times were good, splashing out on unwise acquisitions and expensive projects.

George Cheveley, manager of Ninety One Global Gold, is mindful of this - but remains optimistic. “At the moment, miners are determined not to repeat past mistakes,” he told Fidelity. 

“That doesn’t mean they will never make them again - two more years of higher prices and they might have forgotten. But in these cycles, there are good points when prices have just started rising. You have expanded margins, but you still have discipline.”

Get Tom Stevenson’s latest outlook on gold in the video below

• More on Ninety One Global Gold
• More on iShares Physical Gold ETC

Past performance is not a reliable indicator of future returns

Source: Morningstar, total returns from 31.12.20 to 31.12.25. Excludes initial charge.

Source:

¹ The World Gold Council, October 2025