Friday, December 26, 2008

Gold ETF, an Inflation Hedge or In a Bubble?

An exchange traded fund is similar to a mutual fund with one major difference being that it is traded on the market like a stock. Commodity ETFs are also made up of currency exchange traded funds. These include energies, such as oil and natural gas, agriculture, which includes crops and livestock, and metals, like silver and gold. Commodity ETFs (exchange traded funds) are made up predominantly of things derived or cultivated from the Earth.

This is appealing to some gold investors (coined gold bulls in the marketplace) because they can own gold without having to store the physical inventory. Gold ETFs are shares of gold issued as a certificate. A Gold ETF was launched in March of 2003.

The gold exchange traded fund inventory is securely stored by their holders in vaults. The holder that launched the first gold ETF is StreetTracks Gold Shares. Incidentally, they are also the largest holder of the fund. The corporation holds such a vast amount of gold that it has recently had to find a larger vault in which to store it. Currently StreetTracks Gold Shares stores about 584 tons of gold, with a value of almost 18 billion dollars. When the ETF launched in 2003 they had only 8 tons.

Gold ETFs are considered a good hedge fund for a commodity exchange traded fund portfolio because of the stability gold has shown over the years. Gold 's value has kept up with inflation for more than 100 years. Recently gold ETFs have been up and down, but as a long term investment, gold is thought by many to be one of the safest.

1/10 of an ounce of gold is equivalent to one share. The average cost to trade a gold ETF is about 0.4%. This is a full percent less than other commodity ETFs. Gold is considered to offer the most liquidity of commodity ETFs, making gold the savvy investors choice.

Recently the name of StreetTracks Gold ETF was changed to SPDR Gold Trust, though its symbol, GLD, remains the same. This was a re-branding done to pull all of the corporations commodity ETF funds under one umbrella, making it simpler for investors to find all of the products they offer

SPDR Gold ETF declined by 12.5% in April of 2008, the steepest since the inception of the ETF. It is expected to be back on the rise with analysts suspecting it will hit record highs by the end of the year.

Some advisors are concerned that the storage of the gold is so secretive, making it impossible to know if the gold is so secretive, making it impossible to know if the gold is adequately secure. They also warn that the capital gains tax on gold is almost double that of other commodity ETFs. Other than for making jewelry, they say, gold is a useless commodity.

There are financial advisors who advise against gold ETFs because they feel the funds are a bad choice.

Consider adding a gold ETF to your commodity ETFs, chances are you won't regret it. Gold ETF, the experts tell us, is of the most secure and trusted assets to invest in today. The global demand for gold ETFs is in a constant upswing, even in the current troubled financial state.

They say that gold will always have a value. Most financial advisors and analysts praise gold ETFs as a safe, secure investment because the price of gold, they claim, cannot decline due to political uprise or the fall of financial institutions.


juan December 27, 2008 at 10:40 AM  

I bought gold options from Hanover Brooks...I made a killing as gold went from my buy in price of 775 and sold at 885..resulting in a $10,000 per contract gain!!!! I could not believe it...Gold seems to be trading just like a .com crazy..(I only bought 10 contracts)

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