Gold ETF Investment Choices

Most people believe they are purchasing gold in a giant vault when they buy their first gold ETF.  This is not always the case and can significantly change the fund’s returns in respect to the equivalent return in gold’s spot price.  Let’s talk about a few of the major “gold” fund choices so you don’t end up surprised later.

Gold in a Vault
This is what is traditionally thought of when one purchases a gold bullion ETF.  Companies like GTU are 98% gold with only a little cash for operating expenses.  These funds trade very near their NAV (The value of the assets.)  The impact how one company is ran to another is nearly insignificant to the value of the gold in the fund.

Gold Traders
Other gold exchange traded funds are really teams that trade gold commodities.  They can purchase options, derivatives, gold collectibles, gold from various countries, and companies that work in the gold industry.  With these funds the return on your money is less correlated to the price of gold than the brilliance of the fund team.  This may not have been what you planned when you bought the fund.  Often very little actual gold is owned in the fund.

Gold Companies
The last type of gold ETF we’ll talk about in this article is the gold company funds.  These ETFs purchase companies in the gold industry.  This could include mining operations, refining operations, exchange companies, and other gold ETF’s of the previously discussed varieties.  These funds will often mimic the price of gold; however the quality of the business being purchased also carries significant weight.  A mine run poorly will still lose money when the price of gold is sky high.  These funds will not diversify your normal retirement account as well as a pure gold exchange traded fund.

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