Investing in gold is a great way to secure your investments and hedge them to survive the fallout of a turbulent economy. But not everything about gold bullion glistens. Gold is heavy, it is hard to transport, it will set off a metal detector. Selling gold often means the buyers inspecting the gold in person, testing for purity, and weighing each and every piece. Some countries require you report any gold purchases over a certain amount, and still others prohibit owning gold at all! But it’s not just the inconvenience of owning and selling gold, it’s also dangerous to keep around. Gold is attractive, and if various unscrupulous parties find out that you are storing gold bullion in your house, your life could become an awful lot like a spy thriller movie real fast. Minus the expensive cars, super model scientists, and cool gadgets.
Due to these inconveniences, many bankers and brokers will advise you to invest in gold in an easier way. Gold exchange traded funds are one of those easier means. Commonly called a Gold ETF or GETF, gold exchange traded funds can be bought easily online through a brokerage account. Funds like GLD and others allow you to buy this “almost gold” and keep it in your brokerage account as it if were a stock, which legally speaking- it is stock. Because of this gold exchange traded funds are often called the Gold Stock Market. You are not actually buying physical gold bullion here, no matter how much your banker wants you to believe it. With an ETF you are buying stocks in a company that invests in gold. The EFT’s track the quoted spot gold price.
However, a GETF is a short term investment. You buy the ETF on the gold stock market, you wait tell the prices rise, then you sell the ETF through online gold trading. This scheme is not a long-term recession proof asset protection strategy. And it should never be treated as such. Actually, over long periods of time, the EFT will depreciate in value do to various factors unique to storing and managing the gold. Now, there’s nothing necessarily wrong with investing in gold exchange traded funds, if you want to play the markets for the short term hikes on gold spot prices, go right ahead. Many have made a good bit of money doing this, and many have lost a good portion of their investments as well. If you already have a brokerage account, playing in the Gold Stock Market and partaking in online gold trading is pretty easy.
However there is a major problem in this method as a secure financial investment. You do not directly hold the gold, and you are relying on the banking system to treat you fairly. You KNOW how well that has played out so far. In the case of ETFs, you are actually buying shares in a company that owns gold. Those shares are managed by a Custodian – Barclays iShares in the case of GLD, the biggest ETF. Those shares are then registered in the name of a nominee, then allocated to your brokerage account. What you have is not gold at all – just electrons and promises!
This strategy is relying on at least three financial institutions that could fail at a moments notice, effectively destroying any chance you would have at getting back your investment in the gold ETF. You just bought stock in a company, and the company has gone under. Or look at the case of e-gold for a chilling example of what could happen if the government decides to put their foot down. Gold EFT’s are good for short term investment prospecting, but they are not a safe haven investment that many are looking for.
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