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Understanding The Gold Exchange Traded Funds Market | Financial Planning Tips

Understanding The Gold Exchange Traded Funds Market

Fears over further currency devaluation have many investors looking for new safe havens for their portfolios. A weakening dollar tends to push gold prices up. Millions of small investors are working to move their money to a safer position. Since gold has a long history as a stable investment in times of economic upheaval, many are choosing to move from higher risk investments such as stock into the safer position of gold exchange traded funds.

If you are considering an increase in your exposure to gold as an investment, exchange traded funds can allow you to play in the gold market while at the same time avoiding risk. When investing in a gold ETF your investment is backed by the commodities, however you do not actually own physical gold. It is an opportunity for investors to increase their exposure in the gold market and its price-performance.

One advantage in gold ETF, even though it is a commodity, is that it can also perform as an industry ETF for investors who are seeking greater exposure to the industry of gold mining. Either the commodity ETF or the industry ETF may offer the investor the hedge against inflation they are seeking for their portfolio.

Gold ETF’s come in many different forms, some may take the form of futures and derivative contracts which allows for the monitoring of gold prices and indexes that are gold related. Other forms may give the investor access to an opportunity to invest in gold trusts. This is in addition to ETF’s for the gold industry which monitors the growth of gold mining stock prices.

GLD, which is the SPDR Gold Shares ETF, is one of the most popular among investors. Again you do not actually own the gold that is held in trust if you participate in the SPDR Gold EFT. You can gain all of the risk advantages without having to stockpile gold in your attic.

One of the great advantages to investing in gold ETF’s is the ease and simplicity of making the trade. If you were seeking to put your money into the gold mining industry for example, you could individually invest in gold mines by buying the company’s stock on the exchange. If you don’t know which companies are the best for your investment, you can do your own research on the growth of gold mining companies over the last few years.

If you are not an industry expert it may be more of an advantage to you to purchase gold ETF’s that have been pre-bundled so that you may be able to gain the exposure you desire by making only a single trade. There is also a savings advantage in buying pre-bundled and you save on commission expenses.

Gold ETF’s also have tax advantages. Taxes on capital gains are deferred until such time as you decide to sell. This makes them more advantageous in relationship to your tax liabilities than mutual funds. So all in all when you consider the ease of the transaction and the lower commission rates, gold ETF’s can be very attractive.

Since as the dollar drops in value, the price of gold tends to increase, gold is generally considered to be a safe investment. Gold ETF’s can also be used as a hedge against your risk if you currently hold investments in other industries or foreign countries. One of the ways you can protect your investment in gold ETF’s, if you don’t want to cash out completely but want to continue playing in the market with some short-term protection, is investing in ETF options.

If you are planning to put gold and precious metal ETF’s into your overall investment strategy, then your best approach is to conduct extensive research so that you clearly understand how the market is moving and what your options are. Monitor gold price performances along with how the largest gold ETF’s are doing in the market in order to gain a better understanding of the commodity. Once you are certain that you know what you’re doing, it would then be a good time to call your broker and start planning your investment strategy.

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