ETFs make it to invest in gold. Taxes may be the tricky part

For investors who want to add gold to their portfolios, exchange-traded funds offer an easy way to do it.

Just be sure to keep your expectations in check and know what it can mean for your tax situation, experts say. Depending on how the ETF is structured, any gains may be taxed at a different — and sometimes higher — rate than you expected. And while gold can offer a store of value during turbulent market times, the price tends to be volatile.

“It’s going to bounce up and down, and it’s not always going to work in your favor,” said Dan Sotiroff, senior analyst at Morningstar. 

The value of one troy ounce (32.1 grams) of gold has skyrocketed over the last year, jumping nearly 60% to $4,204 at Tuesday’s market close from $2,638 a year ago. In comparison, the Standard & Poor’s 500 index has climbed about 12.9% in that time, closing Tuesday at 6829.37. The surge in price has been attributed to a variety of factors, including increasing demand from both central banks and individual investors — for the latter, that has included investing through ETFs.

Some experts expect the spot price of gold to reach $5,000 in 2026. If the Federal Reserve lowers its benchmark interest rate when it meets next week, that could draw more investors because gold tends to perform better in low-interest-rate environments.

Nevertheless, it’s typically a good idea to limit your investment to no more than 5% of your portfolio, said certified financial planner David Rosenstrock, director of financial planning and investments at Wharton Wealth Planning in New York. He generally doesn’t recommend including gold in investment portfolios.

Over the long term, “gold tends to underperform asset classes like stocks and bonds quite noticeably,” Rosenstrock said. “While a small percentage difference in annual returns might not seem significant, it can greatly affect an account balance when compounded over many years.”

If you do decide you want to invest in gold, ETFs offer a way to do so without having to physically own the gold yourself. Like all ETFs, they trade throughout the day like stocks. Most are passively managed, meaning they track an index and its performance, for better or worse.

These funds also are a small slice of the ETF universe, with roughly a few dozen in existence compared with the total number of ETFs — more than 4,300, according to Morningstar Direct data.

Some ETFs invest directly in gold bullion. Each ETF share represents a certain amount of that physical gold. The largest one of these is SPDR Gold Shares (GLD) with $140 billion in assets, Sotiroff said.

If you invest in one of these ETFs through a taxable brokerage account, be aware that any profit when you sell may be taxed differently than gains on other investments like stocks and bonds, said CFP Patrick Huey, owner and principal advisor with Victory Independent Planning in Naples, Florida. 

Short-term capital gains — profits on assets held for a year or less — face ordinary income tax rates, which is standard and range from 10% to 37%.

However, even if you hold on to your gold ETF for more than a year, typical long-term capital gains tax rates — which are 0%, 15% or 20%, depending on your income — do not apply.

“From a tax standpoint, [gold is] treated as a collectible by the IRS, so long-term gains … are taxed at a maximum rate of 28%,” Huey said. 

That holds true even if you invest in gold through an ETF. Investors with incomes that fall into higher tax brackets end up paying that rate.

You can also invest in gold through another type of ETF: Those that invest in gold futures contracts — for example, Invesco DB Gold Fund (ticker: DGL).

“These funds use derivatives rather than hold physical gold,” Huey said.

That also results in an unusual tax treatment. Generally speaking, gains on these gold futures ETFs “are governed by the IRS’s so-called 60/40 rule,” Huey said.

This means that whatever long-term gains tax you’re subject to will apply to 60% of the gain, and ordinary tax rates will apply to 40% of it, no matter how long you’ve held the ETF. 

Another route to investing in gold via ETFs is through those that invest in gold-mining companies, such as VanEck Gold Miners ETF (GDX).

“The basic idea is it’s an indirect exposure to gold; the benefits to the mining businesses are tied to the price of gold,” said Sotiroff, of Morningstar.

However, he said, the prices tend to be “extremely volatile.”

“And you’re getting exposure to businesses, not just to a yellow rock,” Sotiroff said.

In other words, you are investing in companies — which means you should be confident in the sector’s future prospects for profits and growth.

For these gold-mining ETFs, any profits you reap would be taxed at normal short- and long-term gains rates.