Gold ETF: The 3 Problems With Gold ETFs

by Investing School on April 21, 2010

A gold Exchange Trade Fund (ETF) is thought to be an uncomplicated option for those want to invest in that precious commodity, and if you decide to take that step, you will own a percentage of what that particular stock represents. Certain stocks are made up of derivatives and futures contracts that monitor the price of gold and other items related to it, and these ETFs have the task of monitoring companies that are part of the gold industry.

Gold ETFs have become quite popular in today’s global economy, and countless investors and speculators everywhere are hoping that they have made the right choice. You may want to invest along with them, but before you do, note that there are three potential problems you may experience along the way.

You Won’t Necessarily be Buying Gold.

Deciding to invest in an ETF is a good idea if you plan on investing along an index, meaning that you feel certain the DOW will experience growth over the long term. But you should also be aware that these ETFs don’t really own any gold. They may be backed by a certain amount of that precious metal, but they are actually derivatives. So, if your real intention is to invest in gold and own some tangible assets, you will be heading in the wrong direction.

The Possibility of Fraud Will be Your Greatest Risk

Those who buy gold coins know exactly what they have, and they can always weigh them, count them and sell them. When you invest in a gold ETF, you are trusting that several layers of accountants, speculators, and bankers are being totally honest with you, which makes you vulnerable to deception.

You’ll Still be Vulnerable to Collapse

One of the reasons many investors acquire gold and precious metals for their portfolio, is because they feer a systematic collapse or economic catastrophe in the future. Whether this is a good idea or not is beyond the scope of this post, we can say for certain that a gold ETF is not going to help in this situation.

If you are thinking about buying gold because you feel that there may soon be a systemic collapse of the global economy, then this investment is not something that you should seriously consider. If you invest in so-called “paper” assets, an authentic pathway to reach your investment will be lacking.

Instead, you probably would prefer to have some tangible assets—part ownership in a mine, gold coins, gold bars, a coffee plantation, oil wells—or something similar. Then, if the worse happens, you still have your assets.

About the Author: Shaun Connell is an investor who runs both a financial planning and a gold coins blog. If you’re interested in learning more about this topic, check out Shaun’s gold ETF guide found at his gold blog.

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{ 1 comment… read it below or add one }

Gold Investor June 2, 2011 at 9:43 am

Precious metals ETFs are considered the simpler of the options when considering investing in gold.

Its main attribute is that you don’t own actual physical gold, but only a percentage of what the stock represents on the market.


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