Why Gold ETFs Remain a Strategic Long-Term Play Despite Common Criticisms

In an era marked by geopolitical tensions, inflationary pressures, and shifting monetary policies, investors are increasingly turning to gold exchange-traded funds (ETFs) as a cornerstone of their long-term strategies. Despite persistent criticisms regarding counterparty risk, fees, and the lack of direct physical ownership, gold ETFs have demonstrated resilience and adaptability, solidifying their role as a critical tool for balancing risk and reward in volatile markets.

Diversification and Inflation Protection in a Volatile World

Gold ETFs offer a unique combination of diversification and inflation hedging, particularly in environments where traditional asset classes struggle. According to a report, global gold ETFs recorded $5.2 billion in inflows during November 2025, marking their sixth consecutive monthly inflow and underscoring renewed investor confidence. This trend aligns with broader macroeconomic conditions: central banks in emerging markets have accelerated gold purchases, reflecting a global shift toward de-dollarization and a loss of trust in fiat currencies.

Gold's low correlation with equities and bonds further enhances its value as a diversifier. Analysts recommend allocating 5–10% of a portfolio to gold to optimize risk-adjusted returns, particularly during periods of heightened volatility. For instance, in 2025, gold prices surged to record highs amid geopolitical instability and the Federal Reserve's rate-cut cycle, reinforcing its role as a safe-haven asset. This performance highlights gold's ability to act as a buffer against currency debasement and systemic risks, making it a strategic component of long-term portfolios.

Addressing Criticisms: Counterparty Risk, Fees, and Physical Ownership

Critics often question the reliability of gold ETFs, citing concerns about counterparty risk, fees, and the absence of direct physical ownership. However, these objections are increasingly mitigated by structural improvements in the ETF landscape.

Counterparty Risk: Physically backed gold ETFs, such as SPDR Gold Shares (GLD) and iShares Gold Trust (IAU), hold actual gold in secure vaults, minimizing counterparty exposure. As noted by Morningstar, these funds are structured as grantor trusts, ensuring that investors' assets are directly linked to the physical metal. While liquidity and transparency remain important considerations, the low counterparty risk of physical ETFs distinguishes them from synthetic alternatives.

Fees and Trading Costs: The fee structures of gold ETFs have evolved to meet investor demands. For example, SPDR Gold MiniShares (GLDM) offers a low expense ratio of 0.15% and minimal trading costs, making it ideal for buy-and-hold investors. Conversely, SPDR Gold Shares (GLD), with a 0.40% expense ratio, compensates with exceptionally low bid-ask spreads (0.006%), catering to frequent traders. This diversity in fee structures allows investors to tailor their choices to their trading styles and cost sensitivities.

Physical Ownership: While gold ETFs do not grant direct possession of the metal, they provide indirect exposure through professionally managed vault storage. The World Gold Council emphasizes that physically backed ETFs are designed to mirror the spot price of gold, ensuring alignment with the underlying asset. For investors seeking direct ownership, options like gold bullion remain available, but ETFs offer superior liquidity and accessibility, particularly in times of market stress.

Structural Strength and Enduring Appeal

The structural strength of gold ETFs is further reinforced by their role in central bank strategies and global economic trends. By September 2025, gold ETFs had attracted over $38 billion in inflows, driven by both institutional and retail demand. This surge reflects a broader recognition of gold's utility in hedging against macroeconomic uncertainties, from inflationary shocks to geopolitical crises.

Moreover, the declining average expense ratios of active ETFs-now significantly lower than traditional mutual funds-have improved the cost efficiency of gold investments. This trend aligns with investor preferences for low-cost, transparent vehicles that can outperform passive benchmarks over the long term.

Conclusion

Gold ETFs remain a strategic long-term play for investors navigating a volatile macroeconomic landscape. Their ability to diversify portfolios, hedge against inflation, and provide liquidity, coupled with evolving fee structures and minimal counterparty risk, addresses many of the criticisms leveled against them. As central banks continue to accumulate gold and global uncertainties persist, the case for allocating to gold ETFs grows stronger. For those seeking a balance between risk mitigation and enduring value, gold ETFs offer a compelling solution.