the trend of gold
ETFs (which, perhaps you know, stands for exchange-traded funds) are passively managed investment funds. These instruments have the purpose of replicating a reference index and are listed on the stock exchange in the same way as shares and bonds.
We are talking, in simple terms, of investment funds that replicate the trend of gold. How? Through a physical replication (that is by buying the real metal directly) or with a synthetic replication, that is by buying or selling gold futures or options contracts.
In general, gold ETFs are particularly popular with traders, who use them for short-term speculation on the commodity.
Gold ETF Short and Leveraged
Recently, short gold ETFs have also made their appearance on the market, which earn when the price of the commodity falls, and also leveraged gold ETFs (which, on the other hand, react more strongly to changes in the price of gold by increasing potential gains and possible losses).
However, these types of instruments are illiquid and do not provide an accurate replica in response to changes in the commodity.
And it is for this reason that those who operate trading prefer to rely on financial instruments with guaranteed liquidity, such as CFDs.
Why Buy Gold ETFs?
However, it must be said that those who buy ETFs on gold do so to have a long-term financial instrument in their portfolio, thus betting on the rise of the commodity in the years to come because this metal is considered a haven par excellence.
And now we continue to clarify the subject of investments in gold.
Differences Between Gold ETFs and Gold ETCs
ETFs and ETCs: it can happen much more often to deal with gold investments in ETCs, rather than in ETFs, yet there is a lot of confusion about it.
According to the regulations of the European Union, it is not possible to set up an ETF on gold, since these instruments should be characterized by a greater degree of diversification, and therefore it is not possible to invest in a single asset, even a well-known one such as gold.
This is why gold investments are mainly available through ETCs (exchange-traded commodities).
These financial instruments are based entirely on the performance of the commodity price and passively replicate the performance of the commodity itself (or of the commodity indices to which they refer).
Their management costs are low and they are traded on all major European stock exchanges, just like ETFs.
Exceptions
However, it is also possible to find real gold ETFs, since in reality the regulation of some countries, for example, Switzerland, allows the launch of ETFs on a commodity.
Management costs
To focus on management costs, we can say that they fluctuate between 0.25% and 0.59% per year. These costs also include insurance premiums, storage costs, and additional product management costs.
ETFs With Gold Stocks
In addition to gold ETCs, we also find gold ETFs. Many mining companies in the world make a lot of money when gold rises in price, but lose money when gold falls in price. Therefore, the performance of the share prices of these companies is linked to the price of gold.
Investors often add them to their portfolios to gain indirect exposure to the commodity. Please note that this type of product is a diversified fund that invests in all gold-processing mining companies. By opting for this solution, you get dividends, something that gold ETCs and ETFs do not guarantee.
In any case, the long-term performance of mining companies can also deviate significantly from the trend in the gold price.
