How Gold ETFs Got Their Groove Back

by: Tom Lydon

As the uncertainty of Europe continues to spill over into the markets, gold ETFs are reacting to all the swerves and bumps by inching higher. The yellow metal, which has been sitting at stage right lately, is finally getting another chance in the spotlight.

There are two major factors driving the price of gold higher: the sovereign debt problem in Greece that is affecting the eurozone and speculation that the global monetary stimulus measures of the past year and a half are going to result in inflation.

SPDR Gold Shares (NYSEARCA:GLD) has been surging, hitting five-month highs this week despite the announcement of a $146 billion bailout package for Greece, reports Sheryl Nance-Nash for Daily Finance.

Today, gold prices are inching toward the $1,200 mark as concerned investors continue to seek out safe havens.

Why investors love gold:

  • Because it is a tangible asset which does not lose its value. It is also a great way to diversify a portfolio.
  • It’s free from counterparty default risk, but unlike real estate, it trades in a deep, liquid international market.
  • It’s easy to sell: Gold has performed extraordinarily well as an investment over the past decade. The price of gold has risen for nine straight years and was up 24% in 2009.

There are lots of ways to play gold with ETFs – physically backed funds, futures funds and the gold miners. Physical gold ETFs are taxed as collectibles, meaning long-term gains are taxed at 28%.

  • SPDR Gold Shares (GLD)
  • ETFS Physical Swiss Gold Shares (NYSEARCA:SGOL)
  • iShares COMEX Gold Trust (NYSEARCA:IAU)

Futures gold ETFs can generate K-1s. Gold miners are treated like any other equity-based ETF and are less sensitive to the day-to-day price moves of gold.

  • PowerShares DB Gold (NYSEARCA:DGL) holds gold futures
  • Market Vectors Gold Miners (NYSEARCA:GDX)
  • Market Vectors Junior Gold Miners (NYSEARCA:GDXJ)

Disclosure: None