Gold ETFs have become increasingly popular within the ETF universe over the years. Gold ETFs first came into being in 2003 in Australia with the introduction of the Gold Bullion Security, and since then have launched in markets around the world. U.S. markets currently have 31 different gold ETFs, which gather total AUM of $62.78 billion.
Gold ETFs act as a hybrid between individual stocks and mutual funds, in that they serve as funds that hold an entire portfolio of assets (like mutual funds), but trade on stock exchanges (like individual stocks), making them easy to buy and sell.
Gold ETFs, like mutual funds, allow for instant diversification within a portfolio. One key difference, however, between these ETFs and mutual funds is that instead of holding a portfolio of stocks or other securities, gold ETFs hold physical assets. Gold ETFs, designed to be the “next best thing” to physical gold, are intended to mirror the per-ounce price of the precious metal. Thus, shares of a gold ETF should hold a direct relationship with the price of gold.
Related: iShares Launches a More Tax Efficient Gold ETF
Gold ETFs As An Invesment
Gold ETFs serve as a good investment vehicle to trade gold, rather than invest in it. Because buying and selling physical gold isn’t the most efficient and feasible option, gold ETFs are significant in that they provide exposure to investors by tracking the price changes of the precious metal, allowing for opportunities to profit without owning the physical asset.
It is important to note that these ETFs hold gold derivative contracts that are backed by the precious metal, meaning that investing in a gold ETF does not result in ownership of the commodity. Thus, when an investor redeems a gold ETF, they do not receive the precious metal, but rather the cash equivalent.
Gold ETFs can be accumulated in small amounts and are fairly liquid, meaning they can be easily sold. Additionally, theft is not a matter of concern in the case of gold ETFs, as investors do not need to incur storage charges, such as bank locker fees.
For more information on the gold market, visit our gold category.
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