Understanding Gold Exchange Traded Funds ETFs

Historically, investing in gold has been the popular choice of people looking for diversification of holdings. This precious metal, which is traded actively by institutions and individuals, has long been a favorite haven for investors. It is one of the last of the safe options remaining especially after the Swiss Franc was fixed to the Euro.

Gold is doubly attractive because it offers greater chances of long-term price appreciation. Gold prices have proved on countless occasions to be seemingly immune to global turmoil. In fact the price of gold has almost doubled since 2008 despite the global meltdown during those years.

Gold is an excellent portfolio hedge because its price generally moves inverse to prime equity standards, typically offering a healthy return when markets are in a slump.

What are Gold Exchange Traded Funds?

Gold Exchange Traded Funds (ETFs) are funds linked to the price of gold. They are listed and traded on all major stock exchanges in the world, and are backed by gold bullion stored in secure vaults. Gold backed ETFs provide a way for investors to trade in the gold bullion market without the need to take physical possession of the metal. ETFs make gold more accessible to investors and enable them to buy and sell securities on the stock market. The prices of ETFs fluctuate proportionately with the prevailing price of gold and deliver the same returns. Each ETF unit is roughly the price of one gram of gold, though there are ETFs which equate to half a gram.

Why should you invest in Gold ETFs?

Gold ETFs are a good investment because they are:

  • Highly liquid and can easily be traded
  • In the Global Asset Class
  • A hedge against currency fluctuation and inflation
  • Less volatile than equities hence less risk
  • Diversification of your portfolio
  • An asset held in an electronic form
  • Have no chance of adulteration as in physical gold
  • Perfect for a retail investor as the minimum trading lot is a single unit
  • An investment product with a Net Asset Value of a unit equating to a price of 1 or ½ gram of gold

How To Invest?

Gold backed ETFs, which are regulated financial products, are listed on all major stock exchanges. Your broker or financial adviser should be able to assist you in trading.

Best known ETFs in the Stock Market

  • SPDR Gold Trust (GLD): This is the largest of the gold backed ETFs globally, and an investor favorite. Daily trading volumes average several billions. This is the ideal fund for both ‘buy and hold’ investors and traders. Each share is equivalent approximately to the value of 1/10th of a troy ounce of gold.
  • COMEX Gold Trust (IAU): This trust is a leading competitor to GLD. It offers access to bullion at only 25 basis points, a super-low cost. Each share approximates the value of 1/100th of a gold troy ounce.
  • Physical Swiss Gold Shares (SGOL): Funds backed by bullion held physically in vaults situated exclusively in Switzerland. Ideal for investors who prefer to keep investments outside the U.K and U.S.
  • Physical Asian Gold Shares (AGOL): As with SGOL, this exchange traded fund is backed by bullion held in vaults in Singapore in Southeast Asia.

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