What are Gold ETF Funds?
Investing in gold or other precious metals is very popular these days, but precious metals investing requires special attention to the logistics of the purchase. Gold ETF funds provide a method for investing in gold that eliminates these issues. The logistics referred to are the problems of insurance, storage, moving, and reselling, along with many others. Here we will clarify what ETF gold funds are, and some of the better ways to trade them.
Firstly however, you should understand what the term ETF means. An ETF is an Exchange Traded Fund, meaning it is traded on the major stock exchanges. The NYSE, and NASDAQ have ETF’s, but the American Stock Exchange (AMEX) is the primary trading venue for Gold ETF funds. When you buy an ETF, you are typically investing in a conglomerate of companies, rather than a single corporation.
It works like this, the Gold ETF fund will purchase a large amount of gold, maintaining the physical metal in storage. They will then issue shares in baskets, the idea here being that the value of the shares will increase with the price of gold bullion. If the price of gold goes up by 10%, then individual shares would increase in value by the same 10%.
What makes this attractive to most buyers is the fact that trading in gold can be done very easily at any time during stock market hours using your online brokerage account. Another thing people like is you don’t have to buy a large amount of gold to invest. Most gold ETF funds have a minimum investment but you can buy in portions of an ounce. This is really ideal since the price of an ounce of gold these days is not something everyone can afford to purchase.
Some of the more popular venues for buying gold or gold mining companies include the SPDR Gold Trust (GLD), Market Vectors Gold Miners ETF (GDX), and ProShares Ultra Gold (UGL). Here’s a brief explanation of how these funds work:
SPDR Gold Trust (GLD) was the very first Gold ETF fund and still the most popular. They purchase 400 ounce gold bars from London Good Delivery Bars, and issue the shares at one tenth of the price of an ounce of the gold.
ProShares Ultra Gold (UGL) is for the seasoned investor who is very aggressive and not averse to risk. Also known as a double gold ETF, it is designed to double the investment return, in other words, if the price of gold increases by 10% the value of the shares should increase by 20%.
Market Vectors Gold Miners fund (GDX) attempts to mirror the NYSE Arca Gold Miners Index as closely as possible, before any fees are removed from the investment. Using index investing, your portfolio will have 32 mining companies behind it. Keep in mind, this type of Gold ETF is made of up gold company stocks, thus it tracks the gold stock index, not the gold price index.
Why Follow a Professional?
Now though I’ve provided a good basic overview of Gold ETF funds, if you’re really serious about gold investing I highly recommend you sign up for a reputable gold ETF newsletter with trading alerts. Without the guidance of a professional who specializes in trading gold securities, you’d not only be losing out on a lot of profits but taking on unnecessary risk at the same time.
One of the best gold newsletter and trading alert services out there is TheGoldAndOilGuy. TheGoldandOilGuy is run by Chris Vermeulen, a professional gold and stock trader with a very impressive track record. Chris is without a doubt one of the best gold ETF traders I know of and what I especially like about his service is that not only does he provide highly profitable trading signals in real time but his whole approach is actually very conservative in nature with limiting your risk being a top priority.
But be warned – if you’re the type of person who has a difficult time following instructions and instead trades on their emotions then please do NOT sign up for this newsletter as you’d only be wasting your time and money. However if you can exercise discipline and execute trades according to Chris’ calls, you’ll likely be shocked by the consistent gains you can achieve.
Click here for the latest market update from TheGoldAndOilGuy.
Leveraging With a Double Gold ETF
A double gold ETF is a leveraged ETF that moves up and down with the price of gold, only doubly so. In other words, if the price of gold goes up 10%, a double gold ETF will go up 20%. Conversely if the price of gold drops 10%, a 2x gold ETF will drop 20% in value.
The attraction for these types of leveraged gold ETFs especially the double long gold ETF has been increasing over the past few years as investors have watched the gold price skyrocket. If you are convinced that the price of gold’s general direction is going to be upward, why not be doubly rewarded as it climbs? Well unfortunately, like most things it’s not really all that cut and dry. Yes, you can drastically increase your yield by investing in a double gold ETF but if you are wrong, even in the short-term, do you have the fortitude to watch the price of gold tumble along with your invested funds? The gold price may come back again and even surpass your projected price, but if you do not have enough conviction of this, you may end up selling for a big loss.
Thus, due to the already extremely volatile nature of the price of gold, gold double ETFs should only be reserved for the most seasoned investor who is not averse to risk and is only risking a small portion of their overall investment portfolio.
Having said that, a lot of investors have been handsomely rewarded for being invested in a double gold fund these past few years and many gold bugs would argue that gold still has a ways to go before it begins to cool off.
If you are one of those investors whose willing to take on the extra risk, you can either invest in a gold ETF or gold ETN. A gold ETN (exchange traded note) is similar to an ETF except that investors hold the debt security until it matures, at which point the issuer will give you the principal amount. Essentially ETN’s have the properties of both an ETF and a bond.
Here are the four main double gold ETF & ETNs to buy:
PowerShares DB Gold Double Long ETN (DGP) will move at the double the gold price and is meant for long gold investments.
PowerShares DB Gold Double Short ETN (DZZ) is the exact opposite of DGP in that it will move at double the price of gold yet in the opposite direction. So if you think gold is going to drop, it’s a perfect investment vehicle for short gold plays.
ProShares Ultra Gold (UGL) ETF will move at double the price of gold and is meant for investors who are long on the gold price.
ProShares Ultra Short Gold (GLL) ETF moves at double the price of gold in the opposite direction, thus ideal for those short on gold.
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