Gold ETFs Trading : NobleTrading Blog

Tuesday, September 22, 2009

Gold ETFs Trading

Gold exchange traded funds (ETFs) allow traders and investors to profit from ever changing gold prices. They passively track gold prices and thus the investor needn't invest money in physically buying/storing the precious commodity. Gold ETFs are getting very popular today. They can be of many types.

They can hold physical gold bullion. The two big gold ETFs - State Street's streetTRACKS Gold Shares (GLD) and iShares Comex Gold Trust (IAU) - have tons of gold in their safe custody.
They can track gold stocks/indexes. E.g. Market Vectors Gold Miners ETF (GDX) track holds stocks of gold companies.
They can track derivatives. E.g. PowerShares DB Gold ETF (DGL) tracks Deutsche Bank Liquid Commodity Index - Optimum Yield Gold, which is composed of futures contracts on gold.

Trading gold exchange traded funds is totally different from buying and selling physical gold or gold futures. Trades are done 'cash only' and, unlike futures, there is no delivery of the precious metal. The advantages of trading gold ETFs include:

Gold ETFs are more liquid instruments; traders can buy and sell any time online.
No cost involved for storing the metal commodity (and insurance costs).
Passive tracking of gold price; ETFs also have low maintenance costs.
Easy to go long or short at any time.

The disadvantages include:

They are considered risky investments as the investors can lose their investments if the banking institutions or the ETF issuing firms face financial crisis.
There is brokerage fees associated with buying and selling ETFs.
They are not suitable for those who want to physically buy and hold gold; and for those looking for very long-term investments.
Trading gold futures demands better knowledge and research.