A gold ETF is an extremely popular method for investing in gold by thousands of investors and speculators across the globe. Whether or not it’s a good or safe investment, however, is a different matter entirely.
In this article we’ll discuss three potential problems one can experience when analyzing a gold ETF investment.
Let’s start off with a problem with gold ETFs that is so fundamental, I can’t believe it’s not discussed by financial media more than it is:
1. You Own No Gold.
Investing in an ETF is fantastic if your goal is to invest along an index — in other words, if you trust the DOW will continue to grow for the long term, then buying an index ETF is a smart choice.
But buying a gold ETF doesn’t make sense because — get this — precious metal ETFs don’t actually own any gold. You own shares in the ETF — but you don’t own any of the actual gold. Even if the ETF is backed by some gold, it’s not actually gold that you own. It’s basically a derivative.
So the first problem with investing in a gold ETF is that you don’t own the gold you’re trying to speculate on. If you want to invest in gold and actually have hard assets, this isn’t the way to do it.
2. You’re At Risk to Fraud.
This is perhaps the most worrisome of the three problems listed in this article. You will be at risk for fraud.
If you buy gold coins, you know what you have — you have the gold coins right there in front of you, and you can count them, weigh them, sell them — you know what you have.
With a gold ETF — just like any other precious metal ETF — you’re relying on 3-6+ layers of accountants and bankers and speculators to be on the up-and-up with you. If someone’s messing with fishy accounting, you’re vulnerable.
3. You’re Vulnerable to Collapse.
Speaking of vulnerabilities, if you’re investing in gold because you are concerned about the plausibility of a systematic collapse of the economy, then investing in an ETF of any sort is obviously a dampened investment.
By investing in “paper” assets, you don’t have a reliable gateway to your investment. I prefer having my portfolio invested in tangible assets — owning part of a mine, gold bars, gold coins, oil wells, a coffee plantation — I want my investments to be touchable. This assures me that, if the proverbial “dung” hits the fan, I’ll still have my physical assets.
Last Thoughts About Gold Exchange-Traded Funds
So, what should you do if you want to invest in gold? Simple. Actually go out and buy gold or go out and buy gold mining stocks. It’s not rocket science.