Gold ETFs: Worth the Risk?

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No investment offers risk-free profits. It’s functionally impossible. We live in an inherently risky universe for humans, especially for investors. Gold’s value can fall in the market in the short-run. The dollar’s value will certainly fall in the long-run. Farmland can be in a bubble, stocks can be poised for a crash, bonds can be defaulted on — nothing is risk free.

Understanding the nature of gold ETFs is important for investors who are looking to maximize security while still getting exposure to gold. We’ll look at the pros and cons, and then end with the possibilities that are profitable.

The Risk of Gold ETFs.

Owning a gold ETF (and there is quite a lot) is not the same as owning physical gold. It serves a different purpose, allowing you to play the price of gold. Yet it does not entitle you to an amount of gold. GLD states high, numbered physical gold backing. But it remains unclear what impact a COMEX rush for physical gold could have on gold ETFs.

  • ETFs have been good up to now for speculating or taking a position in Gold, while not having big counter party risk or storage costs, yet allowing quick liquidation when necessary. The market is changing now and I think this is the great misunderstanding about ETFs. They have a useful function. You just need to be paying attention.
  • Gold ETFs are almost always non-redeemable, meaning if you own “gold” through the ETF, you can’t ever actually get physical delivery. Of course, this means that gold exists as a tracking device — you own shares in an ETF, not actual gold. This is critical to understand.
  • Backed by gold 100%, rules are a bit complicated but you can exchange shares for physical. You still have the other problems of ETFs.
  • Buying gold etf Is not the same as buying physical gold. But it means you can track the price of gold. Just know the risks.

Fundamentally, this means that if something goes wrong, you don’t have any gold. You don’t have even a claim to any gold. And you can’t trade those shares for gold.  This is risky for those who expect bad things to happen in the future — you might have spent thousands on “gold”, only to find out you don’t actually have any when you need it most.

In addition, if things actually get “bad”, there’s a good chance that paper asset and corporations are fundamentally changed. There’s no telling what could happen. Government could commandeer large financial institutions and bank’s holdings of gold. If you own it in physical form, you have less of a chance of being “found out”.

The Pros of Gold ETFs.

Gold ETFs are fairly secure for the short-run, and are pretty cheap. If you want to speculate in gold, buying American Eagle coins, for example, is expensive, bulky, and it’s a little dangerous to carry piles of gold around. If you’re looking for short-term trading, an ETF like GLD can certainly work.

But an ETF isn’t the only option. For traders who want a cheap way to trade gold in the short run, there are other options. BullionVault is partly owned by the Rothschild family, and it allows people to daily trade in gold — while offering delivery for people with substantial assets if they request it. It’s similar to an ETF, but it’s safer because of the redemption factor. It’s also great for silver trading.

 7 Gold ETFs in 2022 (GLD, IAU, & more)

  • GLD – SPDR Gold Trust
  • IAU – iShares Gold Trust
  • GLDM – SPDR Gold MiniShares Trust
  • SGOL – Aberdeen Standard Physical Gold Shares ETF
  • IAUM – iShares Gold Trust Micro
  • UGL – ProShares Ultra Gold
  • GDX – VanEck Vectors Gold Miners ETF

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