Gold ETF and Gold ETF Funds

Gold ETF and Gold ETF Funds

gold-ETFA gold ETF is a type of exchange traded fund (ETF) designed to move up and down in price as the market price of gold bullion moves up and down. It is one of the most popular forms of exchange traded commodity.  These funds work just like any other form of ETF.  Their purpose is to track the price of a benchmark index – in this case, gold.  They contain various assets in combination to achieve this.

Gold ETFs act as a hybrid between stocks and mutual funds.  The fund holds a portfolio of assets – like mutual funds, but trades on stock exchanges -like individual stocks.  Funds are designed to mirror the price of gold. The goal is to allow investors to profit from gold price changes without having to own the physical asset.

The simplest funds, for example, will hold bullion and nothing else. If you buy a share of this fund, you take ownership of part of that bullion.  The value of your share therefore, closely tracks the market price of gold. However, gold ETFs can also be more complicated.  They can mirror and hold assets like gold futures or stocks in gold-mining companies.  If you are interested in the best index funds, check out what Warren Buffett recommends.

Leveraged Gold ETF – 2X Gold ETF – 3X Gold ETF – Ultra Gold ETF 

A leveraged gold ETF uses financial leverage to amplify returns on the price movements of gold.  For instance, a double gold ETF attempts to double any move in the spot gold price. There are also leveraged inverse gold ETFs, which achieve the same result but to the inverse or opposite of gold’s price movement.

Leveraged ETFs can produce incredibly high returns. However, they are extremely volatile and can lose a lot of money just as  quickly.  Leveraged ETFs use terms like ‘Ultra’, ‘3X’, ‘2X ‘, and ‘Double Gold ETF’ coupled with returns that are either significantly better, or significantly worse, than the overall market.

Inverse Gold ETF – Short Gold ETF

Inverse ETFs are investments that deliver the opposite performance of their reference index. An inverse or short gold ETF, aims to move in the opposite direction from the market price of bullion. If you invest $1000 in inverse gold ETF shares and the gold price drops 10%, your shares should increase in value 10% to $1100 (minus any management fees).

Benefits of a Gold ETF

ETFs offer all the benefits of a physical gold investment combined with all the benefits of an exchange traded fund:

  • Precious metals can be used to diversify your portfolio, or hedge against negative market movements
  • Buying and selling them is far easier than taking ownership of physical gold
  • You don’t need huge amounts of capital to invest
  • You can buy or sell your investment at any time during the trading day
  • They can be used to invest in more than just gold bullion, assets like gold-mining stocks or currencies can also be included

How to buy Gold ETFs

ETFs are bought and sold on exchanges, just like stocks and equities. You need a broker that can operate on the exchange for you, just as you would for stocks. Once you choose a broker and a fund, you simply place an order for the shares you wish to buy in your chosen gold ETF. Most trades are completed within minutes, and can be processed entirely online.

Gold ETF Funds – Top Funds by Size (Assets Managed)

Best Gold ETF Funds – SPDR Gold Trust (GLD), $29.4 Billion  

This fund buys gold bullion. As a result, it is sensitive to the price of gold and will follow gold price trends closely.

Top Gold ETFs – iShares Gold Trust (IAU), $10.6 Billion

This fund buys physical gold and stores it in vaults around the globe.  IAU provides investors with a cheaper way to buy and manage gold than would be possible by themselves.

Invest Gold ETF – Swiss Gold Shares (SGOL), $783 Million

SGOL stores gold in Zurich. This fund is very liquid making it easy to buy and sell shares. SGOL stores its gold exclusively in Swiss vaults.

Best Gold ETFs – SPDR Gold MiniShares Trust (GLDM), $306.28

The SPDR Gold MiniShares Trust tracks the gold spot price, less expenses and liabilities, using gold bars held in London vaults.

Gold ETF Stocks – GraniteShares Gold Trust (BAR), $303 Million

GraniteShares is relatively new, created on August 31, 2017. It holds actual gold in secure vaults in London, under the custody of ICBC Standard Bank. Because it holds physical gold, it tracks the price of spot gold quite closely.

Best Gold ETF – Van Eck Merk Gold Trust (OUNZ), $134 Million

The VanEck Merk Gold Trust provides investors with a convenient and cost-efficient way to buy and hold gold.  It offers the convenience of an exchange traded asset, with the option to take physical delivery of gold in exchange for shares.  The Trust’s secondary objective is for the shares to closely reflect the performance of the price of gold less the expenses of the Trust’s operations.

Bottom Line:

Gold must always be considered a speculative investment. Investors usually choose ETFs to spread risk among several assets. However, many of these funds invest exclusively in gold, so gains or losses in those cases are tied directly to the price of gold. They serve as a good investment vehicle to trade gold, rather than invest in it. Also, they are convenient because buying and selling physical gold is not always efficient and feasible. Gold ETFs closely track the price changes of actual gold, allowing for opportunities to profit without having to own the physical asset.

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