Home » Gold ETF: Pros and Cons of Investing in Gold
Gold has been a valuable asset for thousands of years. Throughout much of human history, the yellow metal has been used as currency, jewelry and a store of value. Even today, gold is considered an excellent way to hedge against inflationary pressures and a volatile equity market. Investors can purchase shares of exchange-traded funds that invest in gold as well as directly buy shares of mining companies or bars of the metal itself. The SPDR Gold Shares ETF is one type of product that gives investors exposure to gold prices. This article will explore some pros and cons of investing in the GLD Gold ETF and other ways to invest in gold if you’re considering this type of investment.
The SPDR Gold Shares ETF (GLD) is an exchange traded fund that attempts to track the price of Gold bullion by buying Gold bars and storing them in the companies’ vaults. The fund will attempt to maintain the same amount of Gold as it has shares outstanding, by either buying or selling shares of the fund to match the amount of gold in the vault. The fund is managed by State Street Global Advisors, which charges a management fee of 0.39% per year. The fund is highly liquid, with an average daily trading volume of around 50 million shares. The fund is designed to be a good way to invest in Gold, as the fund’s managers attempt to hold the same amount of Gold as the value of the fund’s shares. This means that the share price of the fund tracks the price of gold very closely. The downside is that the fund charges a significant expense ratio. As an example, if you invest $10,000 in the fund and the price of gold is $1,300 an ounce, you will get 36.2 ounces of gold.
Read What’s an ETF Stock? What You Need to Know Before Investing.
When you buy Gold bullion, you are buying Gold bars that are of a certain fineness (such as one troy ounce of .999 Fine Gold). When you buy shares of a Gold ETF, you are buying shares of a fund that holds a certain amount of gold in its vault. When you buy Gold futures, you are entering into a contract with another investor to purchase a certain amount of gold at a certain price on a future date. The first step to buying gold is determining how you want to invest in gold. Once you’ve selected a method of investing in gold, you can then look for a reputable broker to buy the gold from and sell back to you when you want to sell it. You’ll want to make sure they have a good track record and that you have all the information you need to make an informed decision. Brokers can vary widely in what types of products they offer and the quality of the advice they provide.
– Low cost: A gold ETF has a low cost relative to the amount of gold you own. This is because the fund managers get a small percentage of the value of the fund each year, rather than a percentage of the gold held in the fund’s vault.
– Easy to buy and sell: You can easily buy and sell shares of a gold ETF, which makes it easy to use a gold ETF as part of a tactical asset allocation strategy.
– Easy to store: You can store your gold ETF at the fund’s custodian, which means you won’t have to worry about safe storage of your gold bars.
– No need to pick a gold mining company: Investing in a gold ETF is one way to invest in gold without having to pick a gold mining company.
Cons of investing in a gold ETF
– Expensive: A gold ETF has a higher expense ratio than many other ETFs, which may make it less attractive as an investment over time.
– No control over timing of Gold price: The price of Gold might not increase as much if the price of Gold increases. You have no control over the timing of the price of Gold, so this is an important consideration when deciding how to invest in gold.
– No control over composition of Gold: The composition of the Gold in your gold ETF might not be exactly what you want. For example, you might not want your gold to be British Gold.
– No control over location of Gold: The location of the Gold in your gold ETF might not be exactly what you want.
– No control over purity of Gold: The purity of the Gold in your gold ETF might not be exactly what you want.
– No control over Gold auditing: You have no control over the auditing or management of the Gold in your gold ETF.
Other ways to invest in gold
– Buy gold mining stocks: Buy Gold mining stocks that are expected to increase in value when the price of Gold increases.
– Buy physical gold: Buy physical bars of Gold and store them in a safe location. You can then sell them when the price of Gold increases to make a profit.
– Buy physical silver: Buy physical bars of Silver and store them in a safe location. You can then sell them when the price of Silver increases to make a profit.
– Buy gold-backed ETFs: Buy gold-backed ETFs that are backed by physical Gold. The gold backing the ETF will fluctuate based on the price of Gold.
– Buy gold futures: Buy Gold futures to lock in a price for a future purchase of Gold.
Final words: Is now a good time to invest in gold?
The price of gold is expected to move up or down over time. Investors typically buy gold when they expect the price of gold to increase. When the price of gold decreases, investors typically sell their gold. Currently, the price of gold is near a low point, which may be a good time to invest in gold. The price of gold is expected to increase in the long run because of inflation. Inflation is expected to increase as the government continues to increase its debt through deficit spending. If you want to invest in gold, you can buy gold ETFs or gold mining stocks or buy physical gold or silver and store it in a safe place.