Physical Gold ETFs: Which One is Right for You?
December 27th 2012 at 6:00am by Tom Lydon
Physical gold ETFs backed by bullion have become popular tools for investors seeking an inflation hedge and insurance against major global events. However, gold ETFs vary in their fees and where the bullion is stored, for example.
From a technical perspective, gold ETFs are trading right around the 200-day simple moving average. Gold prices have also fallen below $1,700 an ounce heading into year-end.
“Investing in gold is not necessarily a priority for everyone, but it has some valuable uses in a dollar-based portfolio. Gold is a limited commodity that retains purchasing power even under strong inflationary pressures. On the other hand, increased dollar strength will detract from gold’s value as investors are able to buy more metal with each bill. Unlike paper currencies, gold is not at the mercy of government policy,” Abraham Bailin wrote for Morningstar.
As the fiscal cliff approaches, gold is in focus since it is exempt of government policy and retains value. Those that have not yet invested in gold could consider a physically-backed ETF. These are different from a futures-based fund and follow the spot price. Most of the physical gold funds are the same, but expense and method of storage have an impact upon returns. [Ten Things You Need to Know About Gold ETFs]
SPDR Gold Shares (NYSEArca: GLD) has over $70 billion in assets. The ETF costs 0.40%. Due to the size, the fund is attractive to institutional investors and active traders. There is about $1 billion traded per day in and out of the ETF. As for vaulting, GLD’s gold is vaulted in London and constitutes one of the largest gold hoards in the world, let alone the gold ETF segment, reports Paul Baiocchi for Index Universe. Active traders love this fund for the liquidity. [Tom Lydon Outlines the Case for Holding Gold ETFs]
Buy-and-hold investors could take a look at iShares COMEX Gold Trust (NYSEArca: IAU) because it costs the least at 0.25%. The bullion is vaulted around the globe, and there is $11.4 billion in assets. [How to Use Gold ETFs]
The other two physically backed ETFs are the ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) that costs 0.39% and the ETFS Physical Asian Gold Shares (NYSEArca: AGOL), also 0.39%. Trading volume is lower in these funds, compared to GLD, and SGOL has been more popular so far. AGOL vaults its gold in Singapore, one of the most trusted and transparent financial markets in the world. SGOL, on the other hand, vaults its gold in Zurich, one of the few countries still viewed as a “safe haven,” reports Baiocchi. Some analysts say that vaulting overseas is more effective since the U.S. government can not intervene with the commodity. [China Eyes Gold ETFs]
SPDR Gold Shares
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.