When you want to invest in gold there are two options; investing in real gold bullion or in a gold ETF. Most people have never heard of an ETF and what it does. On this page you can learn why to invest in a gold ETF and how to invest in it.

What is a Gold ETF?

ETF stands literally for Exchange Traded Fund, meaning the fund is traded on the stock market. An ETF tracks a particular stock market index. When you invest in a ETF you are investing in this particular index, and nothing else. So when you invest in a gold ETF, you are investing in the index of a gold ETF of a particular stock exchange. You are either investing in a conglomerate of companies(Gold Stock Index) or in a ETF directly linked to the gold market price(Gold Price Index). So when investing in a Gold Stock Index ETF you are not just investing in one company, but in a conglomerate of companies. In the United States the main stock exchange for gold ETF’s is the AMEX but — for instance, NASDAQ has gold ETF’s as well.

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Gold Price ETF or Gold Stock ETF

When investing in a gold ETF you have the choice to invest in a gold stock ETF or a gold price ETF. The difference between the two is that a gold price ETF is directly linked to the gold price index and a gold stock ETF is linked to companies in the gold industry(like gold mining companies).

How Does a Gold Price ETF Work?

In basics, this is how a gold ETF works; A gold ETF will buy large amounts of real gold(so in physical form) and storage it. After they’ve storaged this gold they divide the gold in shares, based on the market price of gold. These shares is what you buy when you invest in a gold ETF. So when you buy gold ETF shares you are basically buying real gold, hold and storaged by the ETF’s. The shares are directly linked to the market price of gold. When the price of gold goes up 15%, your shares will go up 15%. This way you do not have to storage the physical gold by yourself but still get the same benefits of buying real gold. The advantage of investing in gold price ETF’s is that it’s more stabile(since it’s linked to the gold market price) as investing in gold stock ETF’s.

How does a Gold Stock ETF Work?

When you invest in a gold stock ETF, you are investing in a mixture of companies inside that ETF who are in the gold industry. The majority of these companies are gold mining companies. The ETF shares you buy are linked to how well these companies do. The downside of investing in gold stock ETF’s is that it’s not as stabile as gold price ETF’s, since it’s not directly linked to the gold market price. The advantage of investing in gold stock ETF’s is that you can have a higher return of investment as the gold price ETF’s when the companies are doing well.

Benefits of Investing in Gold ETF’s

The biggest and foremost advantage of investing in a ETF is not having to buy and storage real gold by yourself, eliminating all the disadvantages of storing gold at home like theft, buying and installing a safe, etc. For more advantages and reasons why to invest in a gold ETF, go to our Why Invest In Gold ETF page.

Why Invest in a Gold ETF?

Unlike buying real gold bullion, investing in a gold ETF is suitable for almost anyone all over the world. The reason why is that it’s just like investing in a stock on the stock market; you can do it from home, comfortably in your chair. Another reason why using a gold ETF is such an advantage over buying real gold is that you can use an account with an online broker to buy and sell your gold ETF stocks at any time the stock market is open. You can buy and sell your gold ETF shares within minutes. This is a lot easier as buying, storaging and selling real gold for obvious reasons.

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Safety Of Investing In A ETF

The biggest advantage of investing in gold ETF’s over gold bullion is the safety issue that comes with buying and storaging real gold. When buying a serious amount of gold bullion, you need to be pretty sure that the chance of theft in the home/area that you live in is minimal. Even when you store your gold in a bank safe deposit you aren’t 100% sure it’s safe from theft. Besides the obvious reason of theft another downside of storaging gold bullion at home is that you need to buy a robust, heavy safe to keep the gold in(to protect it from theft). These safes don’t come cheap and are not that easy to install without the help of a professional.

Conclusion

All in all the advantages of investing in gold ETF’s over buying gold bullion are pretty big. We recommend buying ETF shares over real gold. However, there are still a few advantages of buying real gold (read more about that on our Why Invest In Gold Bullion page) but those advantages cannot hold up against the advantages of investing in gold ETF’s.

How To Invest in a Gold ETF?

Investing in a gold ETF is easier as you might think. All you have to do is set up an account with an online broker, find the right ETF and start investing. But of course there are a few things you need to know before jumping into the deep just like that.

Which Online Broker Should I Choose?

When you live in the United States(or any western country) there are many brokers to choose from. Just find out the best one for yourself. Be sure to read some information on the brokers before joining them, so you know for sure you are dealing with a legitimate broker who can give you what you need. Almost any broker will do.

Gold Price ETF or Gold Stock ETF?

If you want a stabile return of investment, your best choice is to invest in a gold price ETF. If you want the possibility to have a higher return of investment(with the risk of having a lower one) you should go for a gold stock ETF. More information about this on our What is a Gold ETF section.

Which Gold ETF Should I choose?

First you need to make a choice between a gold price ETF or a gold stock ETF. If you choose to invest in a gold price ETF we recommend investing in a more popular ETF instead of a more unknown. Since gold price ETF’s indexes are directly linked to the price of gold you do not have to make a choice between ETF’s for performance reasons. So choose a more well-known gold price ETF which has been around for quite some time. This way you know for sure you are dealing with an ETF that you can trust. If you go for a gold stock ETF you should invest how well the different ETF’s do. This is something you need to find out for yourself. Do some research and find out which stocks have been giving a stabile return of investment for a period of time.