However, with gold ETFs, you'll be charged fees throughout the life of your investment. Marketing and management fees are ongoing expenses that you'll have to face. However, you'll also have to pay taxes when you decide to sell your fund. If you really want to own a gold asset, you can't do it through a gold ETF.
In reality, you never own a gold ingot, ingots or coins. Gold ETFs consist of gold contracts and derivatives and can only be redeemed for cash, never for gold itself. Gold tends to rise when the dollar is weak, so if your investment portfolio contains assets that are exposed to downward dollar risk, buying a gold ETF can help you cover that exposure. Gold ETFs “seek to combine the flexibility and ease of trading on the stock market with the benefits of physical ownership of gold,” writes the World Gold Council.
While the fund's assets are backed by the commodity, the intention is not for an investor to own gold. Even central banks buy gold coins and ingots, not gold ETFs, to manage risk, promote stability and protect against inflation and the fall of the dollar. There is a wide variety of other gold and precious metals ETFs, if you decide to look for additional gold ETF options. A gold ETF is a commodity exchange-traded fund that can be used to hedge the commodity risk of gold or expose itself to fluctuations in gold itself.
While physical gold can be bought, sold and stored outside the banking system, gold ETFs and the gold associated with them cannot. Owning shares in a gold ETF is not the same as owning physical gold, and ETFs cannot reproduce the security offered by physical gold. While ETFs generally have many tax benefits, the IRS can classify gold as a collector's item, which can have tax consequences. Gold ETFs offer some of the same asset class defensive traits as bonds, and many investors use them to protect themselves from economic and political shocks, as well as currency degradation.
If an investor increases the risk on the assets in their portfolio when the price of gold rises, owning a gold ETF can help reduce risk in that position. Before you begin, ask a certified public accountant (CPA) how buying gold ETFs will affect your particular tax situation. In theory, you can receive gold from your ETF stocks, but it's not as simple as buying physical gold directly. While vaults like this exist, gold bars are much more accessible than the average gold owner can imagine.
You can explore many types of gold ETFs, but before including them in your investment strategy, consider looking at the performance of some of the most popular funds.
