Choosing Between Direct and Indirect Paths to Precious Metals: AAAU vs. SIL

When investors explore precious metals exposure, they face a fundamental choice: should they own the physical asset directly, or invest indirectly through companies that extract these commodities? The Goldman Sachs Physical Gold ETF (AAAU) and the Global X Silver Miners ETF (SIL) represent these two starkly different approaches. AAAU provides direct gold ownership, while SIL offers indirect exposure through mining companies. This comparison examines how these distinct pathways diverge in cost, performance, volatility, and underlying strategy.

The Cost and Scale Difference Between Direct and Indirect Strategies

The expense ratio gap between these two funds tells an immediate story about structural complexity. AAAU’s direct approach to holding physical gold bars in U.K. vaults requires minimal operational overhead—just 0.18% annually. In contrast, SIL’s indirect structure, which involves managing a portfolio of 42 mining companies, carries a substantially higher 0.65% annual expense ratio. Over extended holding periods, this threefold difference in costs compounds into meaningful performance drag for SIL investors.

The two funds also differ significantly in scale and investor assets. AAAU manages approximately $3.13 billion in assets under management, while SIL commands nearly twice that at $6.63 billion, reflecting divergent investor preferences between direct and indirect precious metals exposure. Both funds have established track records—AAAU launched seven years ago, while SIL has operated for 15 years—providing sufficient history to evaluate their indirect and direct methodologies.

Direct vs. Indirect: How Returns and Risk Diverge

Performance divergence between direct physical holdings and mining company stocks emerges clearly when examining returns and volatility metrics. Over the trailing 12 months (as of Feb. 14, 2026), SIL delivered a 173.52% return, while AAAU returned 73.1%—a significant advantage for the indirect mining approach. However, this superior performance came packaged with notably higher volatility, reflected in SIL’s beta of 0.78 compared to AAAU’s 0.13.

When extending the view to five-year performance, the narrative becomes more nuanced. SIL experienced a maximum drawdown of 55.63%, meaning investors endured losses exceeding half their investment at the portfolio’s worst point. AAAU, by contrast, weathered a more modest 20.94% maximum drawdown. Despite SIL’s recent outperformance, a $1,000 investment in AAAU five years ago would have grown to $2,681, while the same investment in SIL would have reached $2,169—demonstrating how direct ownership’s lower volatility can compound into superior long-term results.

Inside the Holdings: Why Direct Ownership and Indirect Mining Differ

The structural differences between direct and indirect exposure become evident when examining what each fund actually holds. AAAU maintains a straightforward mandate: allocate 100% of holdings into physical gold bars stored in the United Kingdom. This transparency and simplicity characterize direct precious metals exposure.

SIL’s indirect strategy involves assembling a global basket of silver mining operators. Its largest positions include Wheaton Precious Metals Corp. (approximately 20% of assets), Pan American Silver Corp., and Coeur Mining Inc.—predominantly Canadian operations. Notably, Wheaton’s concentration reflects SIL’s reliance on its top holding to drive portfolio performance, a structural feature absent from direct ownership vehicles.

Market Implications: Volatility in Direct vs. Indirect Exposure

The precious metals market has experienced remarkable momentum recently. Since early 2025 through mid-February 2026, gold prices per ounce nearly doubled, driven by geopolitical tensions, international trade friction, and the demand for traditional hedges against currency devaluation. Both direct and indirect strategies benefited from this precious metals surge.

However, investors must recognize the operational constraints unique to indirect mining exposure. Silver presents a particular challenge: approximately 70% of silver extraction occurs as a byproduct when mining other metals, since pure silver mining remains economically difficult. As industries increasingly require silver for electric vehicles, solar panels, and medical technologies, production struggles to match escalating demand. This imbalance may force mining companies to pivot operationally toward other metals, potentially diluting the silver-focused concentration that SIL investors initially sought.

The direct approach avoids this operational complexity entirely. Physical gold holds no production constraints or byproduct complications. Yet direct ownership introduces its own consideration: precious metals exhibit significantly greater price volatility than most equities, and investors must tolerate potential rapid reversals after sharp gains.

Evaluating Your Approach: Direct or Indirect?

For investors deciding between these strategies, several factors merit consideration. The cost differential clearly favors direct precious metals exposure through vehicles like AAAU. The volatility profile also benefits risk-averse investors seeking steady gold exposure rather than mining company fluctuations. However, those with higher risk tolerance and conviction in mining company profitability may find SIL’s recent outperformance and indirect silver exposure appealing, despite the elevated expense ratio and drawdown exposure.

The choice between direct and indirect precious metals strategies ultimately depends on your investment objectives, risk tolerance, and time horizon. Direct approaches offer simplicity and cost efficiency, while indirect strategies provide potential for outperformance when commodity prices surge—though accompanied by increased portfolio turbulence.