Jasmine Birtles
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5 Reasons Why You Might Want To Consider Investing in a Gold ETF
Ruby Layram
16th May 2024
Investing in gold in the traditional way is an option! But, what if we told you there was another option?
In this article, we will be talking everything gold ETFs. We will take a look at what these ETFs are and why you might want to consider investing in them.
What is a Gold ETF?
So, what exactly is a gold ETF?
‘ETF’ stands for Exchange Traded Fund which is a type of exchange traded product. When you break it down, an ETF is a fund that is traded on an exchange.
A gold ETF is a fund made up of assets that are backed by gold.
In other words, it is a basket of different shares that are related to gold. The most common type of company to find in these funds are gold mining companies. Some gold ETFs also own physical gold, and some do a bit of both!
When you invest in a gold ETF, you do not own gold directly. Instead, you invest in an asset that tracks the value of gold. If the price of gold goes up, so will the value of a gold ETF.
To break it down:
- An ETF is a basket of different stocks and shares that is traded on an exchange
- Gold ETFs contain shares related to gold
- When you invest in a gold ETF, you do not own gold directly
5 reasons to invest in a Gold ETF
Gold ETFs allow you to invest in gold without actually owning it. But, why might some investors want to do this?
There are a few reasons why gold exchange-traded products might be more appealing than traditional gold bullions. Let’s take a look at the advantages of buying a gold ETF.
1. Accessibility
One of the biggest advantages of investing in gold through an ETF is accessibility.
Gold ETFs can be traded on exchanges, just like stocks and shares. This means that you can buy and sell them with just a few clicks of your mouse.
To buy a Gold ETF, all you need to do is sign up for a brokerage account, fund your account, and search for the ETF that you are interested in.. Pretty simple right?
On the other hand, buying gold bullion is a longer process. After purchasing the precious metal, you must wait for it to be shipped to you. Then when you want to sell, you will need to find a buyer and ship the bullion over to them.
The process of buying and selling physical gold is more complex.
2. Storage convenience
It’s not just the buying and selling process that is easier with a gold ETF. Investors can also benefit from more convenient storage.
When you own physical gold, you need to invest in a safe (or other type of locked container) that can be used to store your gold. Owning physical gold comes with the challenge of protecting it from thieves and misplacement.
Investing in gold through an ETF, you do not need to worry about storing and safeguarding your gold. The exchange will do that for you.
3. Low investment minimums
The current price of gold (as of 28/04/2024) is £59.90 per gram. For reference, a pound coin weighs around
8.75 grams. This means that buying physical gold has a high entry price. At the moment, you would need to pay at least £516 to buy gold which weighs the equivalent of a £1 coin!
On the other hand, it is possible to invest in gold ETFs for a lower price on some exchanges.
4. Some gold stocks pay dividends
Another advantage of buying gold through an ETF is the chance to earn dividends.
Dividends are regular payments that are made to shareholders of a particular stock – a bit like interest on a savings account. Dividends are paid from a company’s revenue as a way to reward investors for holding their stocks.
Investing in dividend-paying assets could be one way to generate passive income. The more shares that you own, the higher each dividend payment is likely to be. If you reinvest your dividends into more shares of the gold-themed ETF, it could be possible, even if not guaranteed, to gradually increase your income over time.
Physical gold products do not provide this opportunity. You cannot receive dividends from a bullion bar!
5. Leveraged trading
This benefit is for the more risk-tolerant investors and traders who may be reading!
When you invest in gold through an ETF, it is possible to leverage your position. Trading with leverage is a fancy term for trading with money that you ‘borrow’ from the exchange.
This allows you to increase the size of your position, which could lead to higher profits.
However, leveraged trading is very risky! Losses are also amplified when you increase the size of your position.
How to invest in a Gold ETF
If you would like to join the club and invest in gold through an ETF, you are probably wondering how to get started.
Gold ETFs are available through online brokerages and can be bought in the same way that you would buy stocks and shares.
Before you invest, you will need to do some research and find an ETF that you would like to invest in. It is important to shop around and find an ETF that aligns with your risk appetite and long-term goals. Please note that investing in a gold-themed ETF can involve several risks, like for example price volatilities or underperformance of gold mining companies due to various reasons such as environmental policies or exchange rate fluctuations.
Once you have found a gold ETF that aligns with your investment strategy, the next step is to find a brokerage that offers the ETF.
If you already use an online broker to invest, it might be easier to research which gold ETFs are available from that same brokerage. This way, you can keep all of your investments in one place.
To buy a gold ETF, you will need to fund your brokerage account. Then, select how many shares of the ETF you would like to buy.
Once you have invested in the ETF, it will appear in your portfolio. You can usually view this by heading to your profile or account.
Investing in a gold ETF is a way to gain exposure to gold without physically buying it. As always, you should take time to conduct your own research before making any investment decisions.
Thankyou sound like a better return than my private pension
You mention that investing in a gold ETF is a way to gain exposure to gold without physically buying it. There is another way, which is to buy digital gold via The Royal Mint. I’m surprised you don’t mention this option as it’s a good way to grow your investment at relatively little cost eg. 25 GBP at a time, and it’s quick and very easy to do. Better than EFT in my opinion, and less risky.