Gold ETF is a way to invest in gold, if you would like to understand what gold ETF is, first of all, you should know what the ETF is. ETF is the abbreviated of exchange traded fund, that is an investment fund traded on stock exchanges, much like stock. The advantages of ETF are low costs, tax efficiency, stock-like features, and etc.
Then, what are gold ETFs?
Gold ETF is an Exchange transaction open-end securities investment fund products, the transaction procedures similar to the stock. Different from stock ETF, gold ETF is a financial derivatives based on gold to track closely fluctuations of gold spot price. However, the trading of gold ETF is different than the familiar physical gold trading, which is trading gold based on the ETF. In fact, you do not get any gold. Even if you redeem gold ETF, you will receive the cash equivalent, rather than gold in any form. Gold ETF is more and more popular among investors because of its simple and convenient operation and good market liquidity.
Because of the high price of gold, gold ETF usually uses 1/10 oz as a unit of fund. The net asset of each Units Price is equal to 1/10 ounce Spot gold price minus management fees, which is used as a benchmark in the trading price of the securities market or the secondary market price. In additional, the gold ETFs should configure the spot gold in the spot market same proportion fund shares.
What's the advantage of gold ETF?
First of all, in a given period of time, gold ETFs provide investors with an opportunity of accumulating gold. Because it can be purchased in small quantities, investors can plan to purchase gold according to the future requirements.
Second, gold ETFs are simple and convenient to trading. They are listed on the stock exchange, investors trade the gold ETF easily same as trading stock. Investors pay for low transaction costs in trading gold ETFs. Since investors purchase gold ETFs, need not pay the insurance fees, storage fees and insurance costs and so on; just pay the administration expenses with approximately 0.4%. Additional, gold ETFs are with high liquidity which is convenient for investors to trading.
At last, gold is used as a hedge product, gold ETFs also have that function. When the risk of dollar's downside in your investment portfolio, purchasing gold ETFs may help you hedge that exposure. Additional, gold ETFs are also used as a hedge for gaining foreign exposure or regional risk. Therefore, if the gold is at the downside, the short ETF will help ease the loss.
What's the disadvantage of the gold ETF?
First, purchasing gold ETFs, you can not get any physical gold, even if you redeem for cash. Second, when buying or selling gold ETFs, you should pay the additional costs in the form of brokerage or commission. Furthermore, compared to other ETFs which are with many tax benefits, gold ETF may be at a disadvantage. So as you would like to invest in gold ETFs, you should understand more knowledge about gold ETF and how they will bring benefits for you.