Physical gold is always at risk of theft at the time of transportation or storage. For the Gold ETF, however, the fund will take care of that. Gold ETFs are backed by 99.5% pure gold, so investors can rely on the quality of gold. While gold ETFs can be a good investment, they come with a high counterparty risk associated with their custody chain.
And this risk will only increase in line with systemic uncertainties. Gold ETFs give traders the opportunity to invest in gold without having to handle the physical gold. Gold ETFs are generally trusts, and a share in an ETF is a paper asset that represents a specific amount of gold held by the trust. Each share can be bought and sold just like a stock.
Dhanteras, the first day of Diwali in India, is considered cheap to buy gold and silver. Buying gold on cheap occasions is part of the Indian tradition. Investments in gold can take the form of physical gold, government gold bonds, gold ETFs, and gold funds. Gold ETFs are basically exchange-traded funds that invest in gold.
According to Chintan Haria, investors can consider allocating 5 to 10% to gold via the Gold ETF or Gold FoF in their portfolio from an allocation perspective. Even if a gold coin is issued with a monetary face value, its market value is linked to the value of its fine gold content. For this reason, reputable investors who want to take protective measures for their portfolios prefer gold bars. However, the structure and functioning of gold ETFs poses many hidden dangers that few investors are aware of, and these risks are more pronounced than ever, as the threat of another financial crisis is always around the corner.
Physical gold has had value for thousands of years, and many who invest in it find this continuity attractive. Gold is a rare natural resource, so there is only a limited amount, and the new supply is limited compared to the amount already in circulation. The value of the gold in the vaults is likely to be much higher than this limited policy would cover. However, trustees do not insure the gold due to gross negligence, but leave this up to the custodian manager, who provides limited general insurance coverage for the contents of the safes.
If you’re looking for a cheap way to invest in the direction of the price of gold, GLD is ideal. The old way to buy gold bars included finding a dealer and storage facility as well as coordinating insurance, shipping, and delivery. Physical gold ownership involves a range of costs, including storage and insurance costs, as well as the transaction fees and markups associated with buying and selling the commodity. Luckily for investors, there are now online platforms that make buying gold as easy and convenient as trading GLD ETFs.
Taken together, while these costs don’t have a significant impact on someone looking to invest a small portion of their portfolio in gold, the costs can become prohibitive for investors looking to make a larger commitment. The transaction costs associated with gold ETFs are often lower than the costs of buying, storing, and insuring physical gold.