Gold ETF

What is a Gold ETF?

Gold ETFs have been around since 2003. They are investments instruments that allow investors to benefit from changes in the price of gold without having to physically buy and store the precious metal. An ETF or Exchange Traded Fund is a wrapper around investment instruments which can includes anything from shares, funds, indices, commodities, to options. This wrapper is then launched on a market as an instrument in its own right. The ETF should reflect the performance of the instruments within it (though price variation can occur). ETFs have become an increasingly popular and convenient way for traders to diversify their investments. Gold ETFs are an easy way for investors to delve in to gold investment without becoming involved directly with the vagaries of commodities.

Synthetic and Physical Gold ETFs

There are two distinct types of Gold ETF Physical and Synthetic. Physical ETFs are backed by gold in a bank vault that is linked to that ETF. A synthetic ETF uses other types of gold investment products (like futures, options, or swap notes and so on) to track the gold price. These synthetic ETFs don’t have the associated storage issues and costs that arise from holding actual itself gold. Synthetic Gold ETFs as a result appear to be better value for money. The issue as always is risk.

All that glitters is not gold

Physical or synthetic

What is in your ETF?

To find out more about the make up of a Gold ETF you are interested in you should be able to go to the ETFs website and read it's latest published report. This level of transparency is a regulatory requirement.

There are now such a wide variaty of ETFs available it may be very important to research your investment fully before parting with your money.

To find out more about ETFs and market regulation click here