Like Investing in Gold? Consider an Exchange Traded Fund

If you want to invest in gold, try an exchange traded fund. An exchange traded fund is an investment vehicle that is traded on stock exchanges. Exchange traded funds hold assets that track the net asset value of the underlying asset. Gold exchange traded funds aim to track to price of gold throughout the trading day. Gold ETFs are 100% backed by  physical gold. They now represent about a third of investment in gold. Gold has proven again and again as a good safe haven investment, and appreciates in value during time of economic uncertainty.  Gold can also be used to hedge and diversify a portfolio. All gold exchange traded funds carry counterparty risk, which is the risk that the other party will not live up to its obligations.

History

Before  Gold ETFs, investors found it difficult  to efficiently invest in physical gold. The first idea for Gold exchange traded funds came from Benchmark Asset Management Company Private Ltd., but did not gain regulatory approval until March 2007.  Gold is now traded in the form of securities in Australia, France, Hong Kong, Japan, Mexico, Singapore, South Africa, Switzerland, Turkey, the United Kingdom and the United States.

Choosing the Right Gold ETF

Do not assume that all gold ETFs are the same because all gold is more or less the same. Many considerations make various gold ETFs unique. The most important of these factors is how the ETF  is exposed to gold prices. Some funds actually buy and hold physical gold bullion while other invests in futures contracts. Funds that physically hold gold will track the price of gold  more closely. ETFs that  use futures contracts might deviate from the real gold price on occasion because of various phenomena  associated with commodity futures markets. Some investors choose to diversify across many geographic regions, remembering the U.S. gold confiscation of 1933. Some investors also choose to diversify their gold holding across custodians. 

Other Gold ETF Products

Some people would rather not invest in commodities, but still want to track some of their investments with the price of gold. You might want to look into Van Eck’s Market Vectors ETFs , the Gold Miners ETF, Junior Miners ETF, or the Hard Asset Producers ETF. If you are more interested in short term investing, you might want to invest in ETFs that can offer you leveraged and inverse exposure to gold prices.

Fees

Gold ETF typically carry an annual storage fee and a commission of 0.4% per trade. Transactions based in the United States actually carry a much lower commission. The annual expenses associated with the fund are take out of the amount of gold in the certificate, so the amount of gold in the certificate will decrease over time. In some countries gold exchange traded funds are used as a way to circumvent the sales tax on transactions involving physical gold bars or coins. This is not the case in the United States  where gold  ETFs are treated as physical gold and taxed at the accordingly high capital gains rate of 28%.

blog comments powered by Disqus
Scottrade