How to Invest in Gold ETF's

Gold ETF's are an excellent option for investing in gold. However, few investors realize that most gold ETF's do not invest in physical gold. Rather they obtain exposure to gold prices through investments in a variety of financial instruments. The instruments used varies from fund to fund.

Instructions

1. Many investors will be interested in ETF's which physically hold gold bullion in a vault. ETF's that physically hold gold will track spot gold prices very closely. However, investors will pay expenses relating to the gold storage and vault maintenance. Investors may wish to diversify physical gold holdings across several ETF's to mitigate the risks of maintaining large gold stores.

2. The second option for Gold ETF's is those funds which hold gold futures contracts. Futures contracts eliminate the expense and risk of storing and transporting physical gold. These contracts also allow the use of leverage to amplify returns and also permit investors to take a short position, betting on a decline in gold prices. Investments in futures contracts are complex and it is possible for futures investments to deviate considerably from the spot price of physical gold.

3. The final option for Gold ETF's are those ETF's which invest in the stocks of gold mining companies. The stock prices of gold mining companies are correlated with the price of gold. In addition, stocks are much easier to understand than futures contracts. However, investors will be exposed to other risk factors involved in gold mining, rather than owning gold itself.