7 Factors to Remember When Considering Gold ETFs

Gold investors can’t seem to get enough of gold-related 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 full disclosure, Tom Lydon’s clients own shares of GLD.

Max Chen contributed to this article.

Comments

[Nathaniel C:]

"Gold-nuts are the ones who worry about whether the government would ever appropriate gold stores. Wiandt thinks this is highly unlikely and fantastical."

I have to disagree with that statement. Marc Faber noted that only a small percentage of people in the US own gold. It would not be politically unpopular to steal gold from a few "gold nuts" as they call us. All the government would have to do is say we are anti-government extremists who are with Al Queda and the brain dead masses would support confiscating our gold.

It is much easier to steal gold from a small minority than steal American's TVs. Americans would start a revolution over their TVs but not their liberties.

Oct 05 06:54 PM

[bkdc:]

The government can't steal anything that it can't find or trace. Don't buy paper gold.

Oct 05 07:55 PM

[Slvrizgold:]

7 factors to consider:

1) Precious metal etfs are scams designed by banksters to trick people into thinking they own precious metals when in fact they only own a derivative.
2) ETFs are not subject to independent audits
3) Even if someone showed you a warehouse of bars, likely all this gold has been encumbered - meaning it has been leased of sold to someone else. Many experts have proven there are over 100 times more paper claims on gold than exists actual physical metal - meaning a whole lot of people who own a paper claim on gold and silver DON'T OWN IT!
4) JPM is the custodian of SLV. JPM was the one who taught Enron how to run their business model. JPM owns trillions of toxic worthless derivatives and only fake accounting (a mockery) keeps them from being instantly INSOLVENT
5) Probably the funds being used to short the metal at the COMEX are funds being stolen from taxpayers (TARP) or even the Fed might be providing this "liquidity" secretly. Since this money isn't really "their own money" then no one really cares if these positions lose a ton of money in the future massive short squeeze. The fact is that they accomplished their goal: keep the dollar market from imploding and keep "managing" the decline in the dollar
6) Every reputable pundit I know says DON'T BUY ETFs. Buy only PHYSICAL BULLION.
7) Banksters know of nothing except taking something they make out of thin air and they extracting money out of you for the privilege! This is no different for GLD and SLV!!!
8) Banksters really want gold and silver to skyrocket to the moon because they OWN a LOT of it - PRIVATELY! They know the system is a Ponzi scheme and they will be enriched. It is only the public companies and the taxpayer who will suffer when it unravels!

Ok that was 8 things, you got 1 extra LOLOLOL

Oct 05 10:52 PM

[HA65MPH:]

SILEZGOLD,...Yes totally agree with you on ETF`S''...I can`t agree more hold the 'real !......NO PAPER TRAIL !...GLTY..

Oct 06 11:14 AM

[Jeff Diercks:]

Nice piece! Physical gold ETFs appears to be breaking out today to new highs. Volume so far is ok.

However a review of the dollar charts lend me to believe something could be up here. The dollar is testing its previous low, but has not exceeded it yet and could be forming a double bottom. You would expect a break to a new low, if physical gold ETFs are at new highs. Could the gold breakout just be a suckers trap? It would fit with the probability of another leg (B to C leg) down on this correction.

Oct 06 11:36 AM

[swsprime:]

Tom, I normally agree with what you say, but on ETF's I'm sure you've missed something.

You just can't ask us to trust these people's 'IOU this gold' paper. They are not audited. Via the ETF's they tout, they maybe reselling the same physical gold many times over - it could be another giant Ponzi. Its' much better to buy physical gold or gold mining shares.

The more the Gold ETF providers are secretly playing marginal banking with their gold deposits and the more the gold prices go up, the greater the chances are that the ETF schemes will eventually collapse.

The best reference on this ETF business is J S Kim's:

seekingalpha.com/artic...

(P.S. Why doesn't the Seeking Alpha Word Checker recognise the word 'Ponzi'?)

Oct 06 11:43 AM

[searcher:]

In a world so beset by extortionate institutions with the power to confiscate 'paper' gold, silver etc., why would physical possession be safe? Perhaps, relatively more secure? Because the tangible was purchased with cash from the back of a truck behind a strip mall and, thus, no 'paper trail' exists? In the world envisioned, is this store of wealth in a bank vault or 'secure' storage at residence or elsewhere? Where will this wealth be marketed or exchanged or bartered?

Oct 06 01:03 PM

[The Recusant:]

searcher -- Long ago I traded a few cartons of cigarettes for a new custom-made suit in Italy. Those conditions wouldn't be so much different than what we could expect in the U.S. during a high or hyper-inflationary period. There's always a buyer for gold or any other commodity. And I'd rather have a valuable piece of gold than a worthless dollar during times like those.

Oct 06 04:04 PM