I have invested in 2 gold ETFs: Quantum Gold and SBI Gold. Every month, I download the fact sheets of all the funds I invest in to monitor how my money is being invested. As I was checking May 2025 fact sheets, I noticed something interesting.
Gold ETFs have appreciated more than physical gold in recent months. This is bizarre since gold ETFs are expected to always underperform physical gold because ETF returns are physical gold return minus expenses.
I looked up the trailing returns of these ETFs on Value Research Online. To make sure this isn’t special to these 2 ETFs, I also looked up India’s most popular gold ETF, Gold BEES.
| Trailing period | Physical gold | Gold BEES ETF | Quantum Gold ETF | SBI Gold ETF |
|---|---|---|---|---|
| 1 month | 4.50% | 4.85% | 4.92% | 4.86% |
| 3 months | 12.86% | 13.80% | 13.81% | 13.83% |
| 6 months | 24.20% | 27.67% | 26.96% | 27.71% |
| 1 year | 35.72% | 36.54% | 36.72% | 36.68% |
| 3 years | 23.92% | 22.90% | 22.94% | 22.92% |
| 5 years | 15.37% | 14.50% | 14.53% | 14.63% |
This table reveals something new to me: gold ETFs have run ahead of physical gold in the past year. Gold ETFs have been in so much demand that they are running ahead of physical gold’s price appreciation! But this has only been happening in the recent year+. The numbers for 3 and 5 years (and beyond) are as one would expect.
What does this mean for investors?
- If you need to trim your gold allocation, now is a good time; you’ll be able to sell at a price higher than the fair price.
- Now is probably a wrong time to buy gold ETFs. Eventually the market will sober up and ETF returns will fall in line with gold price return minus ETF expenses. That means we can expect gold ETFs to underperform physical gold in the coming months/years. (Of course, no one can tell when the shift will start to happen.)
Caution: Please don’t take this—or anything I write—as financial advice. I myself don’t act on most of my observations. For me, this is merely a fun intellectual exercise.
