Gold ETF Investors Shift to Cheaper Funds Amid Fee Arbitrage

Investors pulled $603 million from the world's biggest gold ETF, SPDR Gold Shares (GLD), this week. This may sound like a retreat from gold, but it wasn't. In fact, three smaller gold funds tracking the same trade gained a combined $403 million over the same period.

The rotation was due to fee arbitrage, with investors moving their money from the more expensive fund (GLD) into cheaper ones (GLDM, IAU, and IAUM). These funds all hold allocated physical gold bullion in a vault and issue shares that track its price. The main difference is the annual expense ratio: GLD charges 0.40%, while the others charge between 0.09% and 0.25%.

The timing of this shift was notable, coming after global gold ETFs added $18 billion in August, their second-largest monthly inflow on record. Global holdings rose to a record 4,189 tonnes with total assets under management climbing to roughly $615 billion.