Categorized | ETF

Advantages of Investing In Physical Gold ETFs


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Why Invest In Physical Gold ETFs?

Physical Gold ETFsSince gold is such a popular commodity that many investors want to have a stake in, there are a variety of different gold Exchange Traded Fund (ETFs) to choose from. Investors need to know how these gold ETFs differ.  The purest way to trade gold using ETFs is to buy physical gold ETFs that are valued based upon physical gold holdings purchased and stored by the ETFs.

Physical gold ETFs are backed by the actual gold that they hold, which has some advantages in comparison to gold ETFs that derive their valuation by indirect means, such as gold futures contracts.  Gold ETFs that derive their valuation form gold futures contracts are subject to the possibility that they may lose value due to futures contracts price decay, which occurs when the gold ETFs have to buy future dated gold futures contracts that are more expensive than the current month’s gold futures contract that they are required to cash out of by selling.  This means gold ETFs that invest in gold futures may lose money and cause negative returns for investors, even if the price of gold selling on commodities exchanges is essentially flat, due to the nature of how gold futures are priced and lose value over time.

Some gold investors would rather invest in physical gold ETFs that actually hold gold, rather than contracts that allow them to buy gold, since during a financial panic there is no substitute for holding physical gold.  Many investors want to hold a position in gold to hedge against extreme market conditions, such as financial panics, since physical assets, such as gold, will hold their core valuation through financial panics.  Gold ETFs that are valued based upon gold futures contracts have no guarantees that they will be able to turn their gold futures contracts into physical gold once a financial panic sets in.  They may be investing in worthless paper contracts.  Wheras, physical gold ETFs hold physical gold in warehouses can ride out financial panics with the backing of hard physical gold assets.  Investing in physical gold ETFs allows investors to invest in physical gold without actually taking possession of gold themselves, which eliminates gold storage and security concerns.

How To Invest In Physical Gold ETFs

Investing in physical gold ETFs can be done via traditional stock brokers, since physical gold ETFs trade on stock exchanges in the same manner as stocks.  All an investor needs to know is the symbol for physical gold ETFs to buy them via the various ways in which stock brokerage firms facilitate the buying of ETFs, including:  online using a website, via phone based interactive voice response systems, or by contacting a live broker.

The following is a list of physical gold ETFs:

  • SPDR Gold Trust (GLD)
  • iShares COMEX Gold Trust (IAU)
  • ETFS Physical Swiss Gold Shares (SGOL)
  • Sprott Physical Gold Trust (PHYS)
  • ETFS Physical Asian Gold Share (AGOL)

Keep in mind that while physical gold ETFs are valued based on the price of gold and the amount of physical gold held by the funds, there are annual ETF management fees that are approximately 1% that will have a slight impact on the performance of the ETFs.

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