A gold ETF is also known as an exchange-traded fund and it is designed to track the price of gold. These funds are traded on large stock exchanges worldwide, including New York, London, and Zurich. Some ETFs hold physical gold, while others track an index or use derivatives. These have different positive and negative aspects that investors should consider.
Within the U.S., the sale of gold ETFs are treated like the sale of the underlying commodity of gold. Therefore, it is taxed at the 28 percent capital gains tax rate for collectibles instead of at the rates applicable to equity securities. Commission and storage fees are typically charged to gold ETF traders and U.S. brokers usually charge a smaller commission.
ETFs can be purchased and sold on the stock exchange in real-time during market trading hours. It is often easier to sell gold ETFs and they are sold at the prevailing market price. However, owning an ETF means you own a percentage of the asset representing the gold- you do not actually own gold.
Investors can more easily afford a gold ETF than they can gold bullion. The tradeoff is there is the risk that the securities held within the ETF will drop in value, which is especially an issue when the ETF is not backed by physical gold. Gold ETFs are risky so it is important that people understand exactly what they involve.
If an individual decides to invest in a gold ETF, it is recommended that he or she also buy gold coins or some other physical forms of gold, for more security. In addition, it is wise to spread the investment amongst more than one ETF to help mitigate risk. Gold ETFs are a way to invest in gold without spending a lot of money but they are one of the more risky investments.