How to Trade Gold ETFs

It would be hard to ignore the recent popularity of trading gold ETFs. Precious metals hit all time highs, propelling more investors into the so-called alternative investments. Gold and silver are naturally in the spotlight in economically challenged times. They offer the potential for hedging weaker performing stock portfolios as well as acting as a potential safe harbor for assets.

The haven trade is a popular one during recessions as investors look to carve out a nook for money until the storm passes. In the recent economic downturn, gold stood out along with the US dollar and Japanese Yen. Currencies that have traditionally low interest rates have often been popular for risk-adverse traders. However, the combined weight of environmental issues following Japan’s earthquake and nuclear disaster undermined the Yen and Japan’s economy. In the United States, a critical debt issue and spending problem coupled with a credit downgrade from one of the leading credit agencies tarnished a currency already weakened by economic policy. That left gold as one of the leading alternatives for investors. These same mechanics helped bring Gold ETFs into the limelight.

The big question for new investors or people wanting to dip their toes into the world of gold then becomes how to trade Gold ETFs.

Gold exchange-traded funds are securities. They are a share of a particular fund – there are many choices – traded on the designated exchange. These funds can be used for a variety of reasons – to hedge part of a portfolio, or gain exposure to price movements in gold. Owning a share in a gold ETF would mean looking to gain if the price of physical gold – and ideally, the ETF that is tracking it, rises. The exposure in Gold ETF markets is not limited to the physical metal. Investors can also look at the sector or industry ETFs that cover the gold mining arena, or the ETFs that have foreign exposure for holdings outside the US like Swiss or Asian gold holdings.

ETFs trade just like equities would in a regular stock market. A funded trading account will likely be required to trade most of these funds. Keep in mind that each trade will likely have specific fees, just like any other investment transaction. Speak to your broker about these costs. Some ETFs might have other fees associated with the purchase of a share, including charges for the storage of the fund’s assets, or physical gold. Again, this is something to research before selecting a particular gold fund. One of the positives associated with an ETF is that unlike the purchase of a basket of stocks or multiple trades, there is one share, one charge and usually no load fees.

This cost savings is most apparent for gold ETFs for the mining sector. To mimic what the goal of the ETF is, you would have to select individual companies and stocks and purchase several equities to try to target a certain price. ETFs simplify this process, although the returns may not be identical to the individual securities.

The exposure that an ETF provides can also be used from the short side. An investor can sell shares in a gold ETF to try to hedge other portfolio exposure. If your current investment portfolio contains a lot of long gold-related positions in mining stocks or a similar asset, you could sell a gold ETF to hedge that. Gold ETFs also offer options contracts for alternative risk management strategies.

ETFs are mostly transparent, publishing their assets on a regular basis, unlike say, a mutual fund which publishes this information infrequently. ETFs should be structured in an easy to understand way. They are also meant to follow the price of something else, which means they should avoid the aggressive management seen in some traditional funds. That can sometimes lower associated management fees. This makes Gold ETFs passively managed funds in most cases.

Keep in mind that many ETFs, including gold ETFs will have specific tax implications. Check these with your accountant. Part of the allure for some investors is that capital gains taxes are normally deferred until the ETF is sold.

ETFs do have some limitations, among them is the critique of some of the larger Gold ETFs in terms of their affiliation with big-name investment banks. Other objections involve the fact that you are not trading physical gold, and in that case, the price is not tracked as closely as some bullion fans may wish.

One of the biggest favors you can do for yourself if you are looking to start trading gold ETFs is to watch the ones that interest you. Take a look at the funds that you want to trade, watch their performance in relationship to the spot price of physical gold. Research and do your own due diligence, and see if trading in Gold ETFs is compatible with your wealth management plans, risk tolerance levels, and overall trading goals.

What is a Gold ETF?

what_is_a_gold_etf

A Gold ETF, or exchange-traded fund, is a security that tracks gold or gold related investments. This might mean the physical commodity is being tracked by the ETF or perhaps a basket of gold mining related stocks. Some gold commodity ETFs will just have one asset – gold. There are also exchange-traded notes that are bank obligations. An exchange-traded fund has derivatives contracts that are bought and sold. This is…

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Comparing Gold ETFs

comparing_gold_etfs

There are so many ETFs available to the modern investor. How are people supposed to choose between them? One of the ways an interested party might evaluate ETFs is via their performance. This might be especially true in the case of Gold ETFs. Unlike some of the other sectors that ETFs track, gold has competition from the physical bullion market, futures and options contracts on gold, and other investing avenues….

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Gold ETFs (exchange traded funds) vs Gold Bullion

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Gold ETFs are not direct investments in physical gold bullion. This might lead some people to ask: why not buy gold instead? These are different investments, and the prices might not be the same at any given time. Let’s take a look at the differences, drawbacks and potential benefits to each. Gold ETFs generally break down into shares on gold or gold related sectors. They are a security that tracks…

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Gold ETFs ——What does ETF stand for?

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ETF – it’s a term that is frequently seen in investment headlines and stories. So what does ETF stand for? It is an abbreviation for exchange-traded fund. This is one modern way people try to invest in groupings of stocks or a trading strategy. An ETF is a security that is traded just like a stock on a designated exchange. They track things like equity indices, particular commodities like gold…

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More Investors Turn to Gold ETFs

More Investors Turn to Gold ETFs

But how those investors are buying gold is becoming increasingly different. More and more, investors aren’t buying physical pieces of gold – which become difficult to manage when gold sells for over $1,500 per ounce. Instead, they’re turning to gold ETFs, which allow investors to gain access to the big run-up in gold, but at a much more reasonable price. In effect, for the first time ever, buying commodities like…

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Pros and Cons of Gold ETFs

Pros and Cons of Gold ETFs

The primary benefit of buying gold ETFs over direct purchases of gold is simplicity. Physical ownership of gold brings with it some serious responsibilities that go with commodity ownership. For example, unless you buy gold directly from a bank, there’s no guarantee of its purity on the open market. You won’t earn any interest from owning physical gold, and you’ll have to pay for a secure storage facility, such as…

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What are gold ETFs?

Gold ETFs Defined

By and large, a gold exchange traded fund (ETF) tracks the current market price of gold. As noted before, in most ETFs, one ETF share represents one tenth of an ounce of gold. With ETFs, shareholders don’t take physical possession of gold; instead the gold is stored in a safe location by the ETF’s custodian. Fees are inherent with gold ETFs, but they are reasonable – most funds charge annual…

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Gold ETFs: Easy Access To One Of Earth’s Most Precious Metals

Gold ETFs Easy Access to Precious Metal

Late April, 2011 marked a watershed moment for gold prices.On April 28, the spot price of gold hit an all-time high, reaching $1,535.00 an ounce – mainly on the continued slide of the U.S. dollar, and from a run-up in inflation. That’s approximately double the price of $670 an ounce the commodities market saw five years ago (in May 2006).But gold prices aren’t really all that volatile, at least historically…

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Top Gold ETFs to Invest In

Top Gold ETFs to Invest In

What you need to know before Investing in Gold ETFs, and How to Play Them Not all gold ETFs are created equal, and their differences can definitely Impact performance. For example, select gold ETFs (like GLD) may buy and hold gold bullion, physically securing and storing the gold. Other ETFs invest primarily in gold futures. The latter funds may not track spot gold prices as closely as funds that physically…

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Disclaimer: Past performance is not indicative of future results. Trading futures and options involves substantial risk of loss and is not suitable for all investors.