Exchange Traded Gold Funds (Gold ETFs)

A new and popular way to invest in gold is the so called Gold ETF. ETF stands for Exchange Traded Fund. As the name suggests, an ETF can easily be bought over a stock exchange by individual investors. ETF's are passively managed investment funds with low costs. A Gold-ETF buys with it's entire money physical gold, being stored in a huge vault. Therefore a unit of a gold-etfs represents a gold ownership and moves along with the gold-price. Because a fund normally diversifies its assets among different investments, a gold etf is something between a fund-investment and an online traded physical gold-bar.

The Gold ETF has a huge advantage against the classic gold coin: it's online-trading combined with the security of physical gold. Important: Please check carefully if your fund is really investing in physical gold, or if the gold-price is just replicated with a so called SWAP. A swap-based gold-investment is a payment-promise to pay the gold-price. But this payment-promise is worth nothing, if the counter-party (bank or broker) goes bankrupt. Therefore a Gold ETF investing in 100% physical gold offers much more security. The fund itself is a own legal entity (fund or investment-trust) and is off the balance-sheet of the bank/broker running the fund.

Besides being heavily traded during trading-hours, Gold ETF's can offer an other advantage: Currency hedge. The gold price is traded in USD. If you believe in a rising gold price in USD terms but the USD is not your investment currency, you might want to have a currency hedge. Otherwise the investment performance in USD might get destroyed by a falling value of the USD against your investment currency.

Gold ETFs attract more and more investor's money because they are so easy and so secure. That leads to the fact, that Gold ETFs are among the biggest holders of physical gold reserves and have over 2000 metric tons of gold in their vaults. That's more than half of Germany's gold reserves (3401 t).

Gold ETFs also offer the possibility to have a gold-investment on the other side of the globe. Among the biggest Gold ETFs you find US, British, Swiss, South-African and Canadian based ETFs.

 

Here comes a list of the 8 biggest Gold ETFs (as of September 2012)

Rank

Name

Country

metric tons

1

SPDR Gold Shares

USA

1301

2

ETF Securities Gold Funds

UK

325

3

ZKB Physical Gold ETF

Switzerland

230

4

COMEX Gold Trust

USA

195

5

Julius Baer Physical Gold Fund

Switzerland

108

6

NewGold ETF

South-Africa

42

7

Sprott Physical Gold Trust

Canada

50

8

ETFS Physical Swiss Gold Shares

Switzerland

34

 

Total

 

2288

 

Pros:

  • Exchange traded                            
  • high security                                  
  • low costs                                                          
  • suitable for bigger investments
  • currency hedge possible
  • no issuer-risk (separate assets)
 

Cons:

  • Swap-based products have the issuer-risk
  • yearly management-fee
  • physical delivery of gold just possible under certain terms

 

Gold Price History 5 years