Gold-backed ETFs are some of the easiest ways to invest in gold. You’re able to use the price of the commodity to your advantage by trading alongside it. A gold-backed ETF will often trade at one-tenth of the spot price of gold. So, at any one time, your investment will go up or down in tandem with the gold price. This is a proportional relationship that protects you as the investor. You’re protected because you’re only tracking the price of gold, so even when it goes down, you have limited exposure. Limited exposure equals limited risk.
Gold ETFs are performing extremely well in financial markets right now. So well, in fact, you should learn about it if you might have any surplus funds at your disposal.
Gold ETFs Are Overtaking Gold Futures As Profitable Investments
Gold prices in 2020 have risen by 14% to around $1,725 an ounce. Futures ‘guarantee’ an investor the right to receive the commodity in the future. You will receive the gold in theory. It’s theoretical because a future’s very definition relies on trading profits and losses based on short-term price movements in gold. At no point is an investor going to take physical possession of any gold bullion.
A gold ETF works similarly. You will not get any physical gold bullion if you invest in a gold ETF. But that doesn’t stop you from making any money. In fact, now might be one of the best times to invest in a gold ETF.
One of the largest and most traded ETFs in the world, the SPDR Gold Shares increased its gold position by 24% since late March. While the Comex, which is a gold futures exchange, fell 7%. People holding positions in gold futures now have the gold spot price trading below those positions. When this happens, it’s like saying card A will trade at $7, and then it trades at $5. Your position is $2 in the negative. So, swapping that expiring future (because you will lose out until it meets the position) will be a loss.
Gold-Backed ETFs Have More Holdings For Investment
According to the World Gold Council, gold-backed ETFs added 154 tonnes of gold bullion to their holdings. This means gold ETFs now hold upwards of 3,500 tonnes in gold. This is an all-time high. The ETF market now has year-to-date net inflows of gold sitting at $33.7 billion. In the past year, investors added $12.95 billion into GLD, the largest bullion-backed ETF in the world.
What does all this mean for you as an investor? It means that the ETF market is giving you a wider berth to play. There will be commonalities among ETFs, but the larger the amounts of the commodity tracked across the market, the more opportunities to profit.
Imagine a scenario like this: someone tells you they base a monetary value on the number of grains of sand in a glass jar, but the glass is only a quarter full. The number of grains of sand is the sample size. A sample size that is too small will artificially inflate or deflate the average. Now, if the cup is full, the average is closer to a ‘true’ value because it considers many more data deviations. Think of the number of tonnes of gold bullion an ETF holds in this way. The more gold an ETF holds, the better it can follow the spot price and give you significant earnings.
An added benefit is that the gold holdings originate from all international regions. So, you’ll be trading on gold from APAC, EMEA and AMER regions. And then on a more granular level, you’ll have bullion holdings from junior, mid-tier, and major gold producers.
The Top Gold ETFs To Invest In To-Date
We’ve made the case for what you should notice about the general market performance of gold ETFs. Now you need to know the exact ETFs to channel your money towards.
- GraniteShares Gold Trust (BAR)
- Perth Mint Physical Gold ETF (AAAU)
- SPDR Gold MiniShares Trust (GLDM)
All the gold ETFs mentioned above had a performance of over 31.5%. That’s a percentage increase. So, if you had been trading in any gold-backed ETFs, you would be over 31.5% wealthier per share.
A word to the wise: investment is never something that you should take lightly. It should be well-considered, and you should consult a financial advisor on the best ways to maximise the return on your investment. It’s difficult to beat facts though and gold-backed ETFs are getting a significant deal of attention from investors. Whether you’re already part of that group or you want to be opportunities to profit exist.