Gold is always a sound investment, no matter the economic climate, and in times of uncertainty, it’s the go-to for most wise investors.  An ETF is an Exchange Traded Fund which works in a way similar to money market funds, but allows multiple trades during the day, rather than just one or two.  Many ETFs are based on commodities like bullion.

A gold ETF is essentially a certificate based on a specific amount of gold.  So one certificate in an ETF might represent half an ounce of gold at current value.  As gold’s value versus the US Dollar increases, so does the value (in dollars) of the certificate.  These can be traded throughout the day like most other stocks, but are exchanged as part of an ETF, so you are always guaranteed a sale or purchase – which is based on the current market value of gold, or gold’s “spot price.”

Different types of funds give different types of ETF investing in gold as well.  The SPDR Gold Trust, for instance, is a gold ETF based on gold bullion, located in the U.S., and with a relatively high expense ratio of 0.4%.  The PowerShares DB Gold Fund, on the other hand, is based on gold futures (rather than physical gold) and has an even higher expense ratio of 0.5%.

If you have small holdings, then going with one ETF and aiming for lower costs is probably most important to you.  If you have a very large amount of holdings, diversifying between custodians rather than minimizing costs may be your goal.

In either case, gold ETFs change daily and even hourly and are a good way to get into gold investing if you don’t want to hold a lot of physical gold yourself.

Gold ETF investing can be done through several types of gold commodities on the market.  Gold futures, actual gold (in certificates), or even physical gold can all be included in a gold ETF.  Usually these funds focus on one type or another, but some dabble in two or all three of them.

Some interesting mixes in this gold ETF investing include some gold ETF offerings that mix the above types, such as the Sprott Physical Gold Trust.  This offering issues gold as certificates (at 1/100th ounce per).  Anyone with at least 4,000 certs (or 400 troy ounces) can redeem those for a London Good Delivery Bar (a 400oz gold bar).  The certificates are removed from the fund and the physical gold is delivered.  This call option often drives the price of each share upwards, beyond gold’s spot price.  This can be good or bad, depending on your perspective.  If you plan to take physical delivery of the gold, you will pay a premium and would probably be better off just purchasing gold itself without going through a gold ETF.  If your purpose is speculative investing, however, funds like this have the ability to be real money makers.

Other offerings on the market offer futures as part of a gold ETF.  This type of gold ETF investing is more speculative than others and requires a real keen eye on current markets (in futures) and their trends.  While investing in gold futures is trending upwards on the whole, individual mines and consortiums may not be doing well or may be stretched to the limit with their futures already – which dogs their price.

Overall, the world of gold ETF investing has definitely gotten interesting and there are few investments that are as exciting when investing in gold today.

They provide the best gold investing option because they are certified and approved by the stock markets and have billions of dollars in assets. This also means that fluctuations in gold price boost the value of the entire fund which is later transferred to each individual investor.

If you are interested in gold ETF then you will have to keep certain things in mind. The first thing to focus your attention on is the type of ETF that you are going to invest your money in. Try to invest in funds that have higher values and market capitalization. This will enable you to earn significant profits. Any rise in the prices of gold will increase the value of the fund. If the increase is 10% then you will see a boost in 10% of your investment. You can always sell your investment whenever you want. It is as simple as that.

The first kind of gold fund actually has gold bullion in its holdings. This is actually hard currency that will always have value, unlike stocks and contracts. No matter what happens to the world economy, this type of fund will always have a value. Examples of this type of Gold ETF fund is SPDR Gold ETF (GLD), iShare Comex Gold Trust (IAU) and Kotak Gold ETF (KGEFT).

There are also the ETF gold funds that hold stock in gold mining companies. These companies mine, transport and have reserves of gold that affects the value of their stocks along with any labor dispute with the unions that do the actual work. An example of this type of gold ETF’s is market Vectors Gold Miners (GDX).

The last type of EFT that has a stake in gold is the one that invests in gold futures. These are funds that have profits or losses are reflected in the upward or downward movement of the price of gold over time. The most popular of this type is the PowerShares DB Gold fund (DGL). The index by which this ETF is graded against is the Deutsche Bank Index in Germany.

The current gold prices have an effect on each of these ETF’s in a slightly different way. The history of this type of investment goes back to 2003 with the launching of the first of the Gold ETF funds. It was the Gold Bullion Securities on the Australian Stock exchange.

What are ETF Funds?

The first step to learning how to invest in gold ETF funds is understand what are ETF funds.  Before investing in any type of investment vehicle, it is important that you understand what you are investing in.  ETF Funds are exchange-traded mutual funds.

Ok, so EFT funds are exchange-traded mutual funds, but what does exchange-traded mean?  Let’s break this down into smaller pieces.  Exchange-traded means that these investment units are traded on the major stock exchanges, like the American Stock Exchange, NASDAQ and New York Stock Exchange.  However, ETF Funds are primarily traded on the American Stock Exchange.

The funds part of ETF Funds means that these are investing vehicles that hold many companies.  When you invest in ETFs you are not buying a single company, but instead a bunch of companies.

What are gold ETF funds?

Unlike mutual funds, gold ETF funds allow you to invest in gold itself.  Gold ETF Funds buy gold  and in exchange for such gold deposits the gold ETF funds issue shares in baskets.  The purpose of gold etf funds is for its shares to mirror the price performance of gold bullion.  Therefore, if the price of gold bullion goes up 10%, the gold etf funds share price would also go up 10%.  These gold ETF funds allow investors to invest in the gold market buy buying securities as opposed to purchasing phyical gold bullion.

Why gold ETF Funds are an efficient way to buy gold?

Buying gold bullion presents many costs that make it difficult for the average investor to purchase gold bullion.  If you buy gold bullion yourself, you will have to deal with the logistics of buying gold bullion, the storage of gold bullion, insuring your gold bullion, and the cost to eventually sell it.  These high costs in buying gold bullion often prevent people for investing in gold.  However, gold etf funds solve this barrier of entry problem for buying gold bullion.

The logistics of buying and selling gold bullion is take care of for you by the gold ETF funds.  All that gold etf investors need to buy are ETF shares.  Investors in Gold ETF funds do not have to worry about storing the gold or insuring the gold.  The gold ETF funds purchase the physical gold, take care of the storage and buy insurance policies covering the gold.

What are the benefits of gold ETF funds?

Gold ETF Funds offer a lot of benefits to people who want to invest in gold.  These benefits include,

Easy to purchase gold ETF shares – Gold ETF funds make it really easy to invest in the gold market.  Through your brokerage account you can buy and sell your ETF shares any time of the day.  Compare this to buying gold bullion where you have to find a gold dealer, drive to the gold dealer, and then purchase a fixed amount of gold bullion.  But let’s say that you only have $1000 to invest in gold.  At today’s gold prices you might not be able buy one gold ounce.  Therefore you couldn’t buy it.  But buying ETF shares allows you to buy fractional amounts of gold bullion.

Gold ETF funds are cost efficient – Another benefit of gold etf funds is that they are a cost efficient way to buy gold.  While you have to pay fees to the gold ETF fund, these costs will be lower than the costs associated with buying phyisical gold yourself.  The costs to purchase, store, insure and sell should all be lower making gold ETF funds very efficient for investing in gold.

What are some Gold ETF Funds?

There are many gold ETF funds, but some of the most popular are the SPDR Gold Trust (GLD), Market Vectors Gold Miners ETF (GDX), and ProShares Ultra Gold (UGL).

SPDR Gold Trust (GLD) – The SPDR Gold Trust ETF was the first gold ETF fund.  Each share of the SPDR Gold Trust costs one-tenth the price of one ounce of gold.  The SPDR Gold Trust ETF purchases gold bullion by buying London Good Delivery Bars which come in 400 ounces of gold bullion.

Market Vectors Gold Miners ETF (GDX) – The Market Vectors Gold Miners ETF is designed to follow the Amex Gold Miners Index which is comprised of 32 gold mining companies.  This gold ETF fund allows you to invest in gold mining companies through index investing.

ProShares Ultra Gold (UGL) – If you are looking for a more volatile way to invest in gold, the ProShares Ultra Gold ETF is designed to move twice as much as the price of gold moves.  Therefore is the price of gold increases 5%, the ProShares Ultra Gold ETF price should go up 10%.

I hope that this primer on Gold ETF Funds has been helpful.  If you have any questions about this article or Gold ETF Funds in general, please ask your questions in the comments below.