Gold Exchange-Traded Funds
is a very valuable commodity these days, with investor interest pushing its price to new records. It is quite hard to invest gold, though. Exchange traded funds
(also known as an ETF
) are often a good way of investing in gold.
and gold coins
can be owned but they need to be kept in a secure place, and the cost of security can be very expensive. They are also fairly hard to sell quickly, as jewelers will often try to pay lower prices for the gold when they realize that the person selling the gold needs to sell quickly.
Shares in gold producers are another way to invest in gold
. These can have a different problem, in that it is not just the gold price that the investor is investing in, but also the company’s prospects. These can be affected by management decisions, the amount of borrowing, the other activities that the company is involved in and the political stability where they are producing. Very rarely is a gold producer what is called a “pure gold play”.
Gold ETF funds
, or exchange traded funds are a good way around the insecurity of physical gold
and the uncertainties of investing in a gold producer. Exchange traded funds are funds that is quoted on a stock market or other exchange. They can cover a large range of investment choices, such as a stock index, and are very cheap ways of buying into these and as they are openly quoted on the stock market a seller is guaranteed to get very close to the current market price when they sell.
Another form of exchange traded fund is the commodity etf. This is where the fund holds the commodity and then issues shares in the holding. A gold etf or gold stock etf will hold gold in their warehouse and issue shares for this. There are a large number of commodity ETFs, including exchange traded funds for silver
, oil and platinum.
An investor is now exposed to the price movements of the commodity, so when the price of the underlying commodity goes up, the price that the holding in the exchange traded fund also goes up. When the price goes down then the price of the exchange traded fund also decreases.
Exchange Traded Funds have been around since the 1990s, but when they first started they dealt with large share indexes and they were an alternative to Investment Funds and Unit Trusts. They offered two advantages, firstly they were easier to buy and sell than many of their competitors and secondly their charges were considerably lower.
In the commodity boom of the early twentieth century commodity ETFs suddenly became popular. At first these involved the holding of a number of different commodities, such as iron, copper and silver; but soon it was clear that there was consumer demand for holdings in single commodities. This was what made the gold ETF and the silver ETF such popular investments.
Although the initial reason that gold became popular was due to the perceived inflationary climate of the early twenty first century when all commodities were doing well, it has since held on to its popularity in more recessionary and uncertain times when other commodity prices collapsed. This was when gold managed to transfer from just another (albeit glamorous) commodity to the safe haven “alternative currency” which unlike other currencies cannot be printed at will. This has been reflected in the relative popularity of the commodity ETFs with those based on “soft” commodities such as wheat and cotton and those based on industrial commodities such as coal and copper falling, while the precious metal
ETFs, particularly a gold ETF, have been rising.
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