Posted on Thursday, April 5th, 2012 | In Exchange Traded Funds
If you have ever seriously considered investing in gold, you may have pondered the inconvenience of accumulating (and securely storing) physical gold. Most people who buy physical gold purchase coins, since gold bars weigh 400 troy ounces. At $1623 per ounce, a single gold bar will cost you $649,200. The only secure place for it would be in a safe deposit box at a bank. How do you bring it to the bank? If you were involved in an accident on the way there, you could lose that $649,200. Would your insurance coverage be adequate for such a loss?
There happens to be a much easier way to invest in gold: Exchange Traded Funds wherein the shares represent specific amounts of gold. In the case of the SPDR Gold Shares ETF, one share represents 1/10th of an ounce of gold, stored in a vault located somewhere in Canada. This type of gold investment is easy to buy and sell. The resulting market liquidity and transparency provide great advantages over haggling with a gold dealer when you decide to sell. If you invest in that bar, a sale becomes an “all or nothing” proposition. On the other hand, a gold ETF allows you to buy or sell individual shares at your convenience – right from your smartphone.
Although the price of the shares is based on 1/10th the price of an ounce, there is a slight discrepancy, due to the fact that the ETF itself may find it necessary to acquire gold from another source to fill the order. Commissions and maintenance are often included in the share prices. Gold ETFs are “passive” funds which employ no fund manager – thus avoiding that expense.
There are quite a number of gold ETFs available to those interested in this relatively safe investment. Although many companies go bankrupt – gold will never become worthless. You could lose a significant percentage of your investment if the market for gold crashes – but you will never lose your total investment. Let’s take a look at some particular gold ETFs:
The most popular gold ETF is the SPDR Gold Shares ETF (NYSEARCA:GLD). GLD was established in November of 2004. GLD has enjoyed a Year-To-Date market return of 5.20%. It has a market capitalization of $67.3 billion and a net expense ratio of .40. Second Opinion Weekly Report downgraded GLD to “Neutral” from “Long” 10 days ago.
The iShares Gold Trust ETF (NYSEARCA:IAU) was established in January of 2005 and has enjoyed a YTD market return of 5.38%. It has a market capitalization of $9.5 billion and a net expense ratio of .25. Second Opinion Weekly Report downgraded IAU to “Neutral” from “Long” 17 days ago.
The Market Vectors Gold Miners ETF (NYSEARCA:GDX) was established in May of 2006 and has sustained a negative YTD market return of -5.21%. It has a market capitalization of $7.7 billion and a net expense ratio of .53. Second Opinion Weekly Report downgraded GDX to “Avoid” 17 days ago. Because this ETF invests in mining companies (which might mine other precious metals as well as gold), the fund’s value does not specifically track the price of gold – as is the case with the other gold ETFs. The top five components of this fund are: Barrick Gold (15.73%), Goldcorp (13.22%), Newmont Mining (9.67%), Silver Wheaton (5.44%) and Anglogold Ashanti (5.36%).
The ETFS Physical Swiss Gold Shares Fund ETF (NYSEARCA:SGOL) was established in September of 2008 and has enjoyed a YTD market return of 5.16%. It has a market capitalization of $1.8 billion and a net expense ratio of .39. Second Opinion Weekly Report downgraded SGOL to “Neutral” from “Long” 10 days ago.
Before reading this article you may have thought; “Gold is gold – so what difference does it make which ETF I choose?” Hopefully, you may have found the answer to that question by now. Good luck!
Disclaimer: Wall Street Sector Selector trades a wide variety of ETFs and positions can change at any time.
About John Nyaradi (http://www.wallstreetsectorselector.com)
John Nyaradi is Publisher of Wall Street Sector Selector: Your Home For ETF Investing! John writes a weekly guest column, John Nyaradi’s ETF Edge for MarketWatch.com and his investment articles have appeared in many online publications including Trading Markets, Money Show, Yahoo Finance, Investors Insight, Fidelity, ETF Daily News, iStock Analyst , among many others. His book, Super Sectors: How to Outsmart the Market Using Sector Rotation and ETFs, is published by John Wiley and Sons and included among the Years Top Investment Books in the 2011 Stock Trader’s Almanac.