iShares Comex Gold Trust (IAU )

ETFS Physical Gold Shares (SGOL ).

The ETFs track the spot price, provide no leverage and are easily tradable. For each share of these ETFs you buy, you generally own the equivalent of one-tenth of an ounce of gold which is stored by a custodian — HSBC. Blackrock and JPMorgan. respectively.

A mistake investors make with the gold ETFs is thinking that they actually own physical gold.

Wrong. The funds hold gold and issue shares, but you own a paper representation of gold.

Also, if a fund needs more gold to meet investor demand, it will often buy gold contracts from the Comex instead of the bullion. Historically, when you let your gold contract expire you received physical delivery of the commodity; now you just get a certificate. So your shares of the ETF might actually be a mixture of bullion and futures contracts.

It’s also hard to determine if the gold in the ETFs really exists.

Will Rhind, head of U.S. operations for ETF Securities, says the custodians for SGOL like JPMorgan or HSBC provide a bar list of all the individual allocated bars daily. Twice a year there is a third-party audit by Inspector International.

James Turk, founder of GoldMoney.com. warns that even if the gold is really there, the fund’s shares can be sold short so two people can own the same ounce of gold — the owner of the original shares and the investor who is borrowing the gold.

Gold ETFs are also more expensive, with fees ranging between 0.25%-0.40%; storing physical gold can cost 0.15%-0.18%.

Another mistake investors make is thinking they can redeem their shares for the physical metal. In terms of SGOL, an investor would have to redeem in whole lots of 50,000 shares (5,000 ounces or $6 million), but only through an authorized participant, which is not readily available for retail investors.

Dave Fry, founder and publisher of ETF Digest, says if you want to buy a redeemable option, closed-end fund, Sprott Physical Gold Trust (PHYS ) is attractive.

An investor is allowed to redeem a minimum of 2,500 shares on the 15th of every month, but you still have to arrange for pick-up and storage. The fund currently has 582,417 ounces of gold and trades at a 9.3% premium to the net asset value. Sprott Asset Management is in the works to launch a redeemable silver fund as well.

Fry says gold ETFs are good investment tools, but if you’re buying gold, get gold.

No matter which way you decide to buy gold, the metal should be part of your portfolio. But it’s important to sidestep these common mistakes to get the most gold for your buck.