Gold ETFs for overseas investors: GLD, IAU or GLDM?

If you live outside China and want a slice of gold, the least painful route is not a jewellery shop — it is a physically backed gold ETF inside your brokerage account. The quote tracks the international gold price, one share is enough to start, sale proceeds settle T+1, and there is no storage, no assay, and no carrying bullion through customs.

But not all "gold ETFs" cost the same: the cheapest and the dearest differ by more than 4x. And there is a tax trap most people never hear about: a US-domiciled gold ETF counts as a US-situs asset for a non-resident alien, so it can be exposed to US estate tax. This article uses today's real quotes to run four sets of numbers — expense ratio, spread, tracking error and estate tax — and then gives you steps you can trade from.

1. Get this straight first: you are not buying "gold", you are buying one of three wrappers

"Buying gold" in an account can mean three completely different things, with different cost and risk structures.

• Physically backed ETFs (GLD, IAU, GLDM, IGLN, SGLD): the fund holds bars in a London vault and each share maps to a fixed fraction of that gold. What you own is an indirect claim on a vault, not a bar you can carry home. No leverage, no expiry, no overnight financing — currently the closest thing to "just holding gold".
• Gold miner ETFs (GDX, GDXJ): you are buying a basket of mining company shares, not gold. If gold rises 10% the miners might rise 25%, or they might fall because costs rose, a mine was struck, or management wasted money on an acquisition. It is equity, not gold.
• CFDs / futures (XAUUSD): contracts that track the gold price with leverage and overnight financing. Good for expressing a view over a few weeks, wrong as a core holding. You can trade 0.01 lots, and leverage magnifies gains and losses alike.

Of the three, only the first deserves the word "allocation". Most people who complain that "I bought gold and made nothing" mistook miner stocks or leveraged CFDs for gold itself.

2. The expense ratio: 0.40% vs 0.09% over ten years

A gold ETF's management fee is deducted daily from fund assets, so you never write a cheque for it — which is exactly why it gets ignored. But it is a compounding enemy: every year's deduction is money that would otherwise have kept growing.

On the same 100,000 USD, GLD and IAUM differ by 310 USD a year and 3,100 USD over ten years; if gold itself compounds at 6% a year, that money should have grown too, and the real gap approaches 4,000 USD. That is not "small change" — it is roughly an extra ounce of gold.

So why does anyone still buy GLD? Because it is the largest, has the deepest book — you can trade 10,000 shares without slippage — and has a complete options chain for hedging. For large, frequently traded accounts, paying a little for liquidity is rational. For someone using gold as a ten-year core holding, there is no reason to pick the most expensive one.

3. Tracking error: the second hidden cost

An ETF's NAV should equal "market value of the gold held ÷ shares outstanding", but the traded price is set by the order book and drifts away from NAV for a while. That gap is the premium/discount. Normally it stays inside ±0.1%; in stress (March 2020, September 2022) it can exceed 1%.

Three practical rules:

• Check iNAV before you order: the iNAV on your broker's page is what the ETF "should" be worth right now. If the price is more than 0.5% above iNAV you are paying for someone else's emotion — wait half an hour.
• Always use a limit order: market orders get the worst fills in the first five minutes after the open and the last two before the close. GLD's normal spread is 1–2 bp, but it can hit 20 bp at the open.
• Avoid the first ten minutes of the US session: 9:30–9:40 New York is when ETF premiums are messiest, especially after a big overnight move in gold.

One more point that gets missed: a GLD share is not a constant 1/10 oz. It launched at 1/10 oz, and the fee is paid by selling a little gold every day, so the gold per share shrinks year by year — it is about 0.09 oz now. At today's 4,126.96 USD/oz that puts one GLD share's NAV near 370 USD. That is why GLD's long-run chart lags the gold price slightly.

4. Estate tax: the trap non-US residents walk into

This section matters far more than the expense ratio, and almost nobody tells you about it.

The US levies estate tax on US-situs assets held by a non-resident alien (NRA), with an exemption of only 60,000 USD; anything above that is taxed on a progressive 18%–40% scale. US-domiciled ETFs — GLD, IAU, GLDM, SPY, QQQ — all count as US-situs assets.

Run the numbers and it hurts: on 200,000 USD of GLD, your heirs may have to find 35,000 USD in cash to pay the tax before they can touch the asset — for money that was only ever meant to "store a bit of value in gold".

Is there an alternative? Yes, and it is well established: Irish-domiciled gold ETCs such as iShares Physical Gold (IGLN / SGLN) and Invesco Physical Gold (SGLD). For US tax purposes they are not US-situs assets and normally fall outside this estate-tax regime — and the fee is only 0.12%. The price is that you buy them on the London, Frankfurt or Amsterdam exchanges, settle in sterling or euros, and have fewer brokers to choose from.

5. Tax and reporting: no dividends, but not "nothing to do"

The good news is that the structure is simple: the fund holds bars, bars pay no interest and no dividend, so there is no distribution and therefore no dividend withholding. All of your return comes from the price change.

• Capital gains for non-residents: the US generally does not tax a non-resident's gain on selling a US-listed ETF (unless you are deemed engaged in a US trade or business). That is not the same as tax-free — you still report where you are tax resident.
• Rules vary enormously: Singapore and Hong Kong have no capital gains tax; Australia gives a 50% discount after 12 months of ownership; Canada includes 50% in taxable income; for US taxpayers a gold ETF is a "collectible" with a top long-term rate of 28%.
• Form W-8BEN: you sign it at account opening to certify non-US tax residency. It is valid for three years and your broker will prompt you to renew. Forget to renew and you can be withheld at 30%.
• CRS exchange of information: your offshore brokerage account data is automatically exchanged to your tax residence. Do not assume silence means nobody knows.

In one line: the ETF is not complicated; your country's reporting obligations are. Above 50,000 USD, an hour with a local licensed tax adviser usually costs a few hundred dollars and is far cheaper than a retroactive assessment.

6. Account opening and order placement, step by step

1. Pick a broker

Plenty of brokers can buy US-listed ETFs: Interactive Brokers has the widest coverage (US, London and Frankfurt, FX conversion around 0.002% with a 2 USD minimum), Schwab and Fidelity suit long-term holding, and a licensed local online broker in your country opens faster. There are only three criteria: is it regulated where you live, what does FX conversion cost, and can it reach the exchange you need.

2. Convert currency

Gold ETFs are priced in USD (or EUR), so your local currency has to be converted first. The cost gap here is real: a bank's board rate typically carries a 0.3%–0.5% spread — 300–500 USD on 100,000 — while a broker like IBKR charges about 0.002% plus a 2 USD commission, roughly 4 USD on the same amount. Same conversion, two orders of magnitude apart. Do not skip this step; it can cost more than a year of ETF fees.

3. Place the order

Use a limit order priced near iNAV (at the ask when buying, or a tick lower and wait for a pullback). One share is enough: GLD is about 370 USD, IAU about 41 USD, and GLDM or IAUM can be bought for a few tens of dollars — a very cheap way to test the water.

4. Time zones

The regular US session runs 9:30–16:00 New York. In Beijing time that is 21:30–04:00 during daylight saving (until 1 November) and 22:30–05:00 in winter time (from 2 November). Spot gold trades 24 hours: the London session is 15:00–23:00 Beijing, New York 20:00–04:00, and the most liquid window is the 20:00–23:00 overlap. From Asia, the comfortable time to place an order is after 21:30 Beijing.

7. Position size: how much gold should you hold

There is no right answer, but there are anchors worth using:

• 5%–10%: the comfort zone for most long-term allocators. The job is "something uncorrelated when stocks fall", not making money.
• 10%–15%: if you are especially worried about inflation or geopolitics, or your own currency is volatile (for example you hold emerging-market currency assets).
• Above 20%: that is a directional bet and needs an explicit macro thesis and exit conditions, otherwise three flat years in gold will hurt.

Write the rebalancing rule down in advance: adjust when gold drifts 5 percentage points from target (target 10%, trim at 15%, top up at 5%), and review once or twice a year. Frequent rebalancing just stacks up commissions and tax bills and drags on returns.

8. The five most common mistakes

1. Treating miners as gold: GDX is equity. Gold can rise and it can still fall, and its drawdowns can be far deeper.
2. Looking only at the fee, not the spread: a 0.09% ETF with a thin book can cost two years of fees in one round trip.
3. Using market orders at the open: the messiest ten minutes for premiums is the easiest place to pay 0.5% too much.
4. Ignoring estate tax: a non-resident holding more than 60,000 USD of US ETFs faces a potential 18%–40% charge. That hole is no smaller than the fee.
5. Forgetting the currency layer: buy dollars with a depreciating local currency and gold up 5% plus currency down 3% shows as 8%; the reverse eats your gain.

If you care about short-term direction rather than long-term allocation, an ETF is the wrong tool — it cannot short and cannot lever. That need is served by spot gold XAUUSD, which is a completely different logic and needs completely different position management.

9. FAQ

Q1. How do I actually buy a gold ETF?
A: Three steps. First, open an account with a broker that can reach US or European ETFs (IBKR, Schwab, Fidelity, or a licensed broker where you live), complete KYC and sign Form W-8BEN. Second, fund the account in USD or EUR. Third, buy with a limit order — GLD, IAU, GLDM and IAUM are US-listed; IGLN and SGLD list in London or Frankfurt. One share is enough: GLD around 370 USD, GLDM only a few tens.

Q2. GLD, IAU or GLDM — which is best?
A: Look at three numbers: fee, size and spread. GLD charges 0.40% and has the deepest book; IAU at 0.25% is the compromise; GLDM at 0.10% and IAUM at 0.09% are cheapest to hold long term but thinner, so use limit orders. If you hold more than three years and above 50,000 USD, the fee saving usually exceeds the extra spread.

Q3. Do I owe estate tax on a US gold ETF?
A: A non-resident's US-listed ETF counts as a US-situs asset, with an exemption of only 60,000 USD and a progressive 18%–40% rate above it. On 100,000 USD of GLD the potential estate tax is roughly 8,200 USD. Irish-domiciled IGLN and SGLD are not US-situs assets and normally escape this rule, but the details depend on your tax residence — confirm them.

Q4. Does a gold ETF pay dividends, and how is it taxed?
A: A physically backed gold ETF pays no distribution — no interest, no dividend — so there is no dividend withholding. The return is entirely capital gain. The US generally does not tax a non-resident's gain on selling a US-listed ETF, but you must report where you are tax resident; Singapore and Hong Kong have no capital gains tax, and Australia gives a 50% discount after 12 months.

Q5. Gold ETF or physical bars?
A: It depends on amount and purpose. Under 50,000 USD, with a need for low cost and high liquidity, the ETF clearly wins: 0.1%–0.25% a year, sell any time, no storage or assay issues. Only very large amounts, a need to sit outside the financial system, or local restrictions on ETFs justify physical. With physical you must count the 1%–3% premium, storage, buy-back discount and insurance — together they usually exceed several years of ETF fees.

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