Buying a Gold Bullion ETF Allows One to Invest in Physical Gold
A Gold Bullion Exchange Traded Fund (ETF) is an ETF that derives its valuation from physical gold that is held by the ETF in warehouses, which means buying a Gold Bullion ETF is a direct investment in gold. The major benefit of buying a Gold Bullion ETF, verses investing in gold via a Gold ETF that derives its value from gold commodity futures and options, is that the potential for price decay is removed when an investment is made in a Gold Bullion ETF. Price decay occurs when further out month’s futures and options contracts are more expensive than the current month, and an ETF must buy the more expensive further out month’s contracts, thus causing the ETF to lose value. This means that the money invested in a Gold Bullion ETF will have more potential to grow over time, since it will not be encumbered by price decay that affects Gold ETFs that are based on commodity contracts.
Gold is a precious metal that is not only sought for its industrial and commercial uses, but also for its intrinsic value as a rare metal that for thousands of years has been cherished for its beauty and used as a currency. Gold is a commodity that can be bought and sold via various gold commodity contracts at commodities exchanges. A commodity is a fungible item; meaning it can be replaced or exchanged by another identical product of similar quality that is produced anywhere.
Gold bullion differs from gold as a commodity because gold bullion is measured by weight and quantity, rather than by price. Gold bullion is 99.9% pure physical gold that can be consist of silver bars, coins (also known as rounds), ingots, or plates. It should be noted that buying a Gold Bullion ETF does not mean the owner of Gold Bullion ETF shares takes physical possession of the gold bullion that the Gold Bullion ETF holds to maintain its valuation. This distinction is important for gold investors that want to take physical possession of gold bullion. An investor who wishes to take physical possession of gold bullion should buy gold bullion directly from a dealer that can deliver physical gold bullion to the investor.
Buying a Gold Bullion ETF
Gold is an increasingly popular investment for investors looking to weather the government debt storm that is sweeping across Europe and the United States since gold servers as a hedge investment against economic uncertainty and currency devaluation. Investing in a Gold Bullion ETF is a good way to invest in the physical gold market without taking delivery of physical gold bullion and dealing with storage and security issues that are associated with holding physical gold.
Buying and selling a Gold Bullion ETF is literally as easy as buying or selling and selling as a stock. An investor uses the symbol for a Gold Bullion ETF to palace a buy or sell order, just as they would any stock. A Gold Bullion ETF purchase or sale can even
be done online, via online brokers.
The most popular Gold Bullion ETF is the SPDR Gold Trust (Symbol: GLD). Unlike Gold ETFs that are based on gold commodity futures and options contracts that at times distort the value of the ETF, a Gold Bullion ETF such as GLD tracks the market price of gold as it trades, and reflects the true price of gold very closely. Minor ETF management fees that are generally less than 1% per year are incurred while owning shares in a Gold Bullion ETF, but these fees relatively inconsequential.
Those who wish to make gold investment part of their investment strategy are encouraged to learn as much as possible about what a Gold Bullion ETF is, which can be a very useful investment tool to invest in physical gold and can serve as a hedge against price declines in other investments.
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