Gold investors can’t seem to get enough of gold-related exchange traded funds (ETFs). But why are gold ETFs so appealing?
Investors are able to easily invest in gold through the use of ETFs and more are doing as inflationary worries rise and the dollar depreciates, writes Ben Baden for U.S. News & World Report. In an interview with Jim Wiandt, publisher of IndexUniverse, Baden uncovers what gold ETFs offer for the average investor.
- Physical gold? Premiums in purchasing physical gold and buying gold certificates have been historically expensive. By using ETFs, gold investors have an easy and practical way to gain access to gold bullion.
- Gold ETFs. The gold-related ETFs that hold gold buillion don’t have any major differences, Wiandt says. They are similar and priced identically. The only difference is that one ETF may hold gold in Switzerland as opposed to being held in London. Gold-nuts are the ones who worry about whether the government would ever appropriate gold stores. Wiandt thinks this is highly unlikely and fantastical.
- Historic trends. History has shown that gold is usually a great hedge when markets go down, with lots of risk and fear in the markets. But the recent financial crisis pulled gold down, which was probably because of the overall deleveraging process.
- Gold vs. gold miners. The difference between gold ETFs and gold miner ETFs is that gold mining funds often hedge movements in the price of gold, so the price of gold does not wildly affect the companies. Gold mining stocks are more volatile, and higher volatility can mean higher profits on the upswing.
- Gold environment. Generally speaking, dollar-bearish environment and high possibility for inflation is a gold-bullish environment. There are talks of gold reaching new, unforeseen heights but that would take a long time. The current economic situation is in favor of gold, but an investor needs to consider the current historically high price level of gold.
- Portfolio allocation. Gold is typically put in a portfolio as a hedge in case the markets turn sour. Wiandt doesn’t recommend putting a high percentage of one’s portfolio in gold. Commodities exposure usually means around 5%.
- Volatility. Gold volatility is perceived as volatile as currency fluctuations, but the reality is that gold is less volatile than stocks.
- SPDR Gold Shares (NYSEArca: GLD): up 13.1% year-to-date
- iShares COMEX Gold Trust (NYSEArca: IAU): up 13.1% year-to-date
- PowerShares DB Gold (NYSEArca: DGL): up 11.8% year-to-date
- ETFS Gold Trust (NYSEArca: SGOL): recently launched ETF
For more information on gold, visit our gold category.
For full disclosure, Tom Lydon’s clients own shares of GLD.
Max Chen 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.