GOLD ETFs (EXCHANGE TRADED FUNDS)
Exchange Traded Funds (ETFs) are easily traded instruments that can be used by investors in a number of ways. They can be used to enhance a portfolio, and fit in with investment strategies that have different aims. They can be bought to hedge exposure, or increase it, or for reasons of diversification. Certain gold ETFs can even be bought to speculate on a fall in the price of gold.
In our guide, Gold Investments Explained, ETFs were described in general. This article looks more closely at the different types of gold ETF’s, and gives particular examples of each one. Each week we will keep you updated on the ETFs that we have previously highlighted, and add to the list of ETFs that we are following.
By following thegoldeconomy.com, an investor will have a weekly reference point and be better informed and more able to invest wisely.
Gold ETFs that hold Gold Products
These invest in products such as gold bullion in a trust that covers the liabilities of the fund on an ongoing, and as required, basis. They allow an investor to participate in the movement of the gold price, without the need to individually buy and store physical gold.
IShares Gold Trust (IAU) is one such fund. It was created in January 2005, and currently holds around $9.75 billion of assets (net). It pays no dividend, its price fully reflecting the net value of its assets. The investment strategy of the fund is to replicate the daily price movement of the price of gold bullion. It receives gold deposited with it in exchange for the creation of baskets of iShares, sells gold as necessary to cover the trust’s liabilities, and delivers gold in exchange for baskets of iShares surrendered to it for redemption. A great ETF for those the investor seeking a direct route to the value of gold.
Gold ETFs that hold Gold Futures
Constructed differently to those ETFs that hold physical gold, this type nonetheless seeks to track the performance of gold through holding gold derivatives such as futures and options. Generally speaking, the expenses associated with such funds are lower than for those that hold physical gold.
ETFs that follow the Gold Industry
These ETFs consist of companies that operate within the gold industry. They are similar to sector ETFs, and will track baskets of companies that rely on gold as a core business.
Market Vectors Gold Miners ETF (GDX) is designed to replicate the price and yield performance of the NYSE Arca Gold Miners Index (before fees and expenses). A non diversified fund, 80% of its total assets are normally invested in shares and American Depository Receipts (ADRs) of gold mining companies. This fund pays a dividend, and current yield is approximately 0.64%. Created in May 2006, it has net assets of $9.64 billion.
Multiple Metals ETFs
Many investors want exposure to more precious metals than gold alone. There are ETFs that cater for such investors, and include multiple metal products.
PowerShares DB Precious Metals (DBP) is one such fund. It seeks to track the performance of the Deutsche Bank Liquid Commodity Index – Optimum Yield Precious Metals Excess Return. This index is composed of futures contracts on gold and silver, and is intended to replicate the performance of the precious metals sector. The fund was created in January 2007, and has net assets of $694.62 million.
ETFs that short Gold
For those investors that feel the gold price will fall, or for those that have a long position an want to hedge against a fall in the gold price, short gold ETFs are constructed to give exposure to the downside. If the price of gold falls, the price of a short gold ETF will rise.
ProShares UltraShort Gold (GLL) is an investment that aims to return twice the opposite performance of gold bullion on a daily basis (before fees and expenses). In other words, when the gold price rises, the price of this fund will fall by twice the rate, and vice versa. It invests in a combination of swaps, futures, and options. With a net asset value of $167 million, it was created in December 2008.