Gold ETF funds are a widely used method for the standard investor to invest in gold without every touching a single gold coin. I’ve written before about the SPDR Gold Trust. The SPDR Gold Trust is among the biggest, trading on the NYSE under GLD. In the past, I’ve also explained why I would never own GLD.
Gold ETF Funds Beyond GLD
Gold ETF Funds Based On Bullion
Nevertheless, if you are interested in “paper” precious metal, there are a bunch of other gold ETF funds to consider. ETF Securities offers the ETFS Physical Swiss Gold Shares. This can be found on the NYSE under SGOL. While GLD houses its gold in London, SGOL keeps its metal in Switzerland. This fund also has a smaller expense. Still, there are a number of costs to consider with gold ETF funds. Using these funds avoids the premiums you’d have to pay over spot metal prices for physical bullion, but these are replaced by other costs.
SGOL offers other features. It is a little less expensive than GLD, and storage of the underlying gold in London as opposed to Switzerland may only be a matter of preference. But I’ve also noted previously how GLD permits a convoluted custodial network. On the flip side, SGOL uses only dual custodians. One is J.P. Morgan Chase in America (Which I don’t really care for) and UBS in Zurich. I like things simple, and think the fewer the better. It makes it easier to account for things.
In addition to the slimmer custodial setup, SGOL may have a better means of supporting the outstanding investments. See, as with GLD, all shares of SGOL are supposed to stand for 1/10 an ounce of gold. However, SGOL is backed entirely by gold. They do not use leasing, certificates, or other dubious concepts. In the end, all the gold that is supposed to support your investment is at least supposed to be stored at all times, and you’re not so reliant on third parties.
There’s yet a new kid on the block to compete with GLD and other gold ETF funds, and that is the iShares Gold Trust. This started in January of 2005 and it is also to be found on the NYSE. It claims to be undergirded by 100% metal allocations, and advertises that it is diversified with bullion holdings in Canada, England, and America. As you can imagine, the influx of options and opportunities, coupled with brokerages offering commission-free ETF trades, is creating more and more interest in these vehicles. Having said that, at the end of the day, I’ll still not invest in a single one of them.
Gold ETF Funds Based On Stocks
I think a better alternative in the gold fund arena is the Market Vectors Junior Miners ETF (GDXJ). It’s also traded like a stock on the NYSE, but follows mining companies rather than the bullion metal itself. It’s the smaller cap relative to the Market Vectors Gold Miners ETF that tracks bigger companies that are actually producing metal right now. This is traded under GDX on the NYSE.
I prefer these ETFs because they can capture some of the leverage that mining companies offer over bullion price moves alone. This is magnified more with the junior resource companies. However, this is not enough to outpace the returns I’ve produced by hand-picking my own winners. As a result, I use these ETFs only for buying call options to get exponential leverage in short periods of time. For instance, I posted better than 100% on a GDX call option. GDX only moved about 20% in the six weeks it took me to more than double my money. That’s the way I magnify the already-existent leverage of mining companies with options.
Gold ETF Funds & Why They May Not Measure Up
Having said that, there’s nearly no place in my portfolio for gold ETF funds of any variety. I can hold the bullion or buy the stocks and own them cheaper than any fund. Moreover, by controlling the process, I control the end result. And so far for me, the end result has been not only savings by avoiding fees, but also bigger returns on the investments I’ve chosen relative to the various funds.
If interested, I’ve written a companion article on Silver ETF Funds you might like to read.