Investors interested in gaining exposure to gold bullion moves do not need a commodities account to trade the hard asset. Instead, more are turning to exchange traded funds to easily access the precious metal.
Gold traders contend that the Federal Reserve’s money-printing spree will eventually lead to a decline in the U.S. dollar, but foreign central banks, notably the European Central Bank and Bank of Japan, are flooding the markets with their own currencies, strengthening the U.S. dollar for now, writes Dan Moskowitz for Investopedia. [U.S. Dollar Takes Gold ETFs For A Ride]
Nevertheless, some maintain that the U.S. dollar will eventually depreciate when organic growth takes hold and inflation begins to rise in an expanding economy, which would help gold become a safer store of wealth in the long run.
Consequently, if an investor is concerned about the markets and wants an alternative asset that provides a lower correlation to traditional stocks and bonds, one can take a look at gold ETFs that are physically backed by gold bullion stored in bank vaults.
For starters, the SPDR Gold Shares (NYSEArca: GLD), the world’s largest ETF backed by physical holdings of gold, has been a go-to option for large traders, hedge funds and institutional investors seeking to capitalize on its large pool of liquidity and tight bid-ask spreads. GLD has $28.5 billion in assets under management and an average volume of 6.8 million shares.
Similarly, the iShares Gold Trust (NYSEArca: IAU) is another large option with a lot of active trading. IAU has $6.3 billion in assets under management and an average volume of 3.2 million shares. Additionally, IAU is the cheapest of the gold ETF options with a 0.25% expense ratio.
Consequently, individual retail investors who do not need to move millions of dollars of gold but rather sit on to their gold exposure may find IAU a cheap buy-and-hold option. Something like GLD would be a better play for large institutional-sized traders who may execute huge trades due to the fund’s tight spreads and activity.
Alternatively, since IAU and GLD shares are backed by gold stored in London vaults, investors can take a look at the ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) to diversify gold exposure. If something were to happen in London that could affect the gold stored there, SGOL investors will be relieved to know that their gold exposure is stored in Swiss vaults.
Additionally, unlike other gold ETFs, the Merk Gold Trust (NYSEArca: OUNZ), a relatively new player in the gold space, allows investors to take physical delivery of gold bullion for shares of OUNZ, but potential gold share converters should be aware that fees for physical delivery are significant. [Merk Gold Trust Makes First Delivery]
For more information on the gold market, visit our gold category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of GLD.