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There are a variety of ways to invest in precious metals. An increasingly popular option among investors is exchange-traded funds (ETFs). These securities offer the chance to invest in commodities without taking physical possession, and gold ETFs are among the most desired.
Like every other investment, though, there are benefits and disadvantages to gold exchange-traded funds. Recognizing this fact before investing is essential. All the positive media in the world means nothing if you’re spending your money blindly.
At Silver Gold Bull, we know how important it is to be an informed investor. By learning everything you can about gold ETFs, you’ll better position yourself to make smart investments. And once you’re knowledgeable about these securities, you may find there are better opportunities available.
What Are Gold ETFs?
Imagine for a moment that you know wheat prices are about to skyrocket. While you may have never considered investing in the grain, who is going to pass up a surefire investment? Your biggest problem is figuring out how to invest. Do you plan on becoming a farmer?
While some entrepreneurial folks may go that route, your best bet is to invest in an exchange-traded fund that tracks the price of wheat. In doing so, you’re investing in the commodity without having to take physical possession. The same is true for gold ETFs.
Also known as a form of “paper gold,” these securities allow people to invest in the precious metal without buying gold coins or other bullion types. The definition is fairly straightforward:
“A gold ETF is a commodity fund that tracks the price of gold and trades similar to a stock. The fund’s value is based on its underlying assets, and investors can gain exposure to gold while often maintaining diversified holdings.”
Putting money into physical gold has remained a popular investment option. Precious metal ETFs, though, have seen a spike in popularity recently. This is thanks to the entry of over 10 million new investors during the 2020 outbreak of COVID-19.
An increased interest in investment grew gold ETF popularity to new heights, but this was the case for nearly every security you can buy from home. Unfortunately, many of these new investors jumped into exchange-traded funds blindly. Doing this can prove costly.
Even if the price of gold consistently grows, other factors can affect the performance of ETFs. We’ll delve into whether exchange-traded funds are a good option in later sections. If you opt for this investment route, though, it’s imperative that you research your best options.
Best Gold Exchange-Traded Funds
When researching gold ETFs, you’ll find there are several options to choose from. When looking into each, it’s important to not just pay attention to past performance. These securities may track varying assets — even if they’re all related to gold.
Whereas one exchange-traded fund may track the price of gold, another could have investments in mining companies. Buying an exchange-traded fund without knowing what you’re investing in can lead to unexpected but foreseeable losses on your part.
Of course, it’s also possible to invest in the underlying assets for each of these securities. Buying gold bullion bars or coins is great for doing this, but there are other options available as well. Some of the most popular approaches — after physical bullion — are gold stocks.
Paper Gold Alternatives to ETFs
Gold ETFs are not the only paper gold option out there. Some people shy away from exchange-traded funds for a variety of reasons. Anything from less diversification to higher costs could be behind this hesitancy. Regardless of the reason, though, gold stocks offer an alternative.
Regardless of what type of paper gold you invest in, though, they’ll always have disadvantages over buying physical bullion.
Benefits of Bullion Over Gold ETFs
If you’re considering investing in gold exchange-traded funds, it’s because you believe the yellow metal is a brilliant investment. And if you’ve paid attention to recent media reports, it sounds like you might be right. When you look at your options, ETFs may seem like the easiest route.
After all, you can invest in a gold ETF in seconds from your phone. Of course, there are disadvantages to every investment. And with gold ETFs, the comparative advantages of bullion are what really stand out.
Just consider a few of the benefits of investing in bullion rather than paper gold:
- Physical bullion holds universal value.
- Selling ETFs sends an immediate notification to the government.
- Corporate decisions and other unrelated factors don’t affect physical gold.
- Gold currency carries additional value besides precious metal content.
- Physical gold gives you more control over your investment.
Buying precious metals carries a variety of benefits that digital securities simply can’t match. Does this mean gold ETFs are poor investments? Not necessarily. But if you have the choice between physical and “paper” assets, the former always seems to be the best choice.
Are Gold ETFs a Good Investment?
There are plenty of great things about gold exchange-traded funds. After all, investing in something that’s profitable is always the right move — right? For instance, the SPDR Gold Trust grew about 20% between January 2020 and January 2021. That’s nothing to balk at.
During that same period, however, the price of gold grew by nearly 30%. This shows one of the biggest disadvantages to gold ETFs: they won’t always track the price of gold. You’re not just tracking the price of bullion with an ETF; you’re tracking the price of a fund.
Unfortunately, a variety of outside factors can affect the performance of these funds. Bad executive decisions can drop prices. Overall market fluctuations can have disproportionate effects. Companies can even go out of business and drop prices through the floor.
Like any other type of security, gold ETFs can be an excellent investment when you invest wisely. In every situation, though, remember that you’re not investing in gold. You’re just investing in a fund that’s linked to gold in varying ways.
Invest in Physical Gold Today!
Exchange-traded funds offer a variety of benefits for investors. With investing in precious metals, though, you may be better off sticking to bullion. While it’s certainly possible to profit from ETFs, many people find the disadvantages to be a deterrent.
If you’re still considering investing in gold ETFs, make sure you do the proper research before buying. This guide presented several of the best options, but you’ll still want to investigate each before making any final decisions.
If you’d rather stick with physical bullion, though, Silver Gold Bull can help! Visit our Gold Bullion Products page today to dive into the world of precious metals investing.
