Gold ETFS, or Gold Exchange-Traded Funds, are a special type of ETF that tracks the price of gold. These funds are traded on all of the major stock exchanges, including New York. An ETF, or Exchange-Traded Fund, is a fund that trades on the major stock exchanges, just like equities. An ETF has assets, just like any mutual fund, with Gold ETF’s hold gold as its primary asset. A Gold ETF has just gold as its asset, and does not hold any gold related stocks, such as gold mining companies. Gold ETF’s hold gold bullion only.
Gold ETF’s, often referred to as GETF’s, are a relatively new type of investment vehicle. The first Gold ETF ever envisioned was an ETF developed by a management company in India. However, that ETF was unable to obtain regulatory approval, and did not trade publicly until March of 2007. The first Gold ETF to trade publicly was “Gold Bullion Securities” which traded on the Australian Stock Exchange under the ticker “GOLD”. Gold Bullion Securities is fully backed by gold bullion, which is physically held and insured by the fund. The idea behind Gold Bullion Securities was to give the average investor a way to invest in gold, but without having to worry about settlement and storage of actual gold bars. Furthermore, the fund is a good alternative to gold futures in that the market is not as volatile.
There are now quite a few different Gold ETF’s in existence. The largest of these GETF’s are Exchange Traded Gold, iShares COMEX Gold Trust, ZKB Gold ETF, Central Fund of Canada, Central gold Trust, ETFS Physical Gold, PowerShares DB Gold ETF, and many others. These trade on all international exchanges, including New York, London, Paris, Mumbai (Bombay), Tokyo and Australia. They are very accessible and easy to own, even for the novice investor.
Gold ETF’s are an excellent way for an investor to invest in gold without having to go to the commodities market, and without having to buy futures. Of course this also has its disadvantages. Disadvantages to Gold ETF’s are that they are often not as liquid as physical gold is. Also, if the fund ever needed to be liquidated, there is the possibility of fraud by the manager of the ETF. If a Gold ETF went belly up, the fund’s gold position would be liquidated, often at a loss, and then the proceeds would be divided between the shareholders. The shareholders would be paid in cash, and not in gold, and depending on the value of the dollar that could cause a further loss. However, on the positive side, if the market did go belly up, having an investment based on gold would be a much better investment than one based on an investment that has no intrinsic value.
Gold ETF’s are very popular, and analysts and investors alike often think ETF’s are taking over the market, with people investing in Gold ETF’s at a record pace. It costs less to buy in and sell out of ETF’s, as opposed to gold bullion. Since these funds are traded on all exchanges, it is very easy for an investor, even a novice investor, to invest in one of these funds. Exchange rules usually have no minimum number of minimum shares required for purchase, so it is possible to buy just one share of a Gold ETF. However, this could present liquidity issues down the road when it comes time to sell, as it is often difficult to sell odd amounts of securities, which are also often referred to as “odd-lots”.
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