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

Important information -  the value of investments and the income from them can go down as well as up, so you may get back less than you invest. 

Buried deep under the Bank of England are nine vaults filled with 400,000 gold bars. Some of these are owned by the UK Treasury, but they mainly belong to the world’s central banks, which have stored their reserves under Threadneedle Street for decades^1.

Earlier this year, however, there was a rush to remove gold from the vaults and fly it to New York, amid fears that Donald Trump would impose tariffs on the metal. Traders reported bottlenecks of several weeks, made worse by the physical challenge of shifting heavy bars in a secure way².

Things have calmed down since then, but this snapshot captures the weird world of precious metal trading - and the logistical problems it can pose.

• Get expert insights straight to your inbox with our free investor emails

It is possible for retail investors to buy physical gold too. The Royal Mint, for example, sells coins and bars ranging from £100 to over £80,000. 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 performance 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.

• See our current offers to help make your money go further

It hasn’t always worked out this way, however. Sometimes a soaring gold price has bypassed miners entirely. This is because they have operational challenges to contend with - often in high-risk locations. London-listed gold miner Resolute Mining learnt this the hard way last year, when its then chief executive was temporarily detained in Mali by the country’s military junta.
 
On the flip side, companies have the power to pleasantly surprise the market. Shares in Greatland Gold, for example, have been climbing fast after it discovered new life in one of its mines.

The lumpier trajectory of gold miners is reflected in chart below, which shows the 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 actual gold price - over three years. Both feature on our Select 50 list of favourite funds.

• View our Select 50: our favourite funds - selected by experts

The Ninety One fund has also proved more volatile over a 10-year time frame, but has produced periods of much stronger returns than physical gold - including this year.

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. 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 - most recently - during Trump’s trade war.
 
Gold is prone to steep rallies and deep slumps, however, and some investors are worried that the price has peaked. A survey by Bank of America survey found that 45% of fund managers now think gold is overvalued, up from 34% in April³.

But governments are still flocking to buy it. Gold has overtaken the euro as the second largest reserve asset for central banks, and Goldman Sachs thinks this demand will keep driving the gold price higher this year ⁴. This theory is supported by a new survey from the World Gold Council, which found that central banks “increasingly view gold as an important strategic asset within their reserve portfolios” ⁵.

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.

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

Past performance is not a reliable indicator of future returns

Source: Refinitiv, total returns from 31.5.20 to 31.5.25. Excludes initial charge.
 

Source:

¹Bank of England. 15.10.20

² The Royal Mint. March 2025

³Mining.com. 17.5.25

⁴Goldman Sachs. 15.5.25

⁵WorldGold Council.17.6.25

If you’ve got a burning question you want to ask, why not drop us a line? Ask us your question