How gold ETFs can save the game
Got the gold bug? There are a few different ways to invest. Besides donning jewellery, you can buy physical gold coins or bars, purchase gold futures contracts, invest in gold exchange-traded funds (ETFs), or even pick up shares of gold miners.
Let’s briefly examine the pros and cons of each.
Buying the physical metal arguably gives you the best correlation to the “spot” – that is, the current – price of gold. And physical gold is also the obvious choice for those prepping for an actual doomsday scenario of monetary and financial system collapse.
The downside is that unless you’re happy to stash that bullion at home, you’ll have to pay annual fees for storage and insurance.
Futures contracts have the advantage of leverage. For just a small outlay you can gain exposure to the same levels of profit (or, crucially, loss) that you’d get from investing a large sum in gold itself.
That’s also a drawback, however: the smallest futures contract is worth ten troy ounces, so a gold price at $2,000 per troy ounce means you’re looking at making a bet worth at least $20,000!
Another disadvantage is that futures contracts have expiry dates 📅, which means you’re constantly having to reinvest in newer contracts that are typically more expensive than the spot price of gold. All this rolling over adds up over time. And above all - it’s too complex for non-professional investors and, due to the leverage involved, can be a very risky 😨 investment.
The biggest benefit of investing in gold ETFs or ETCs (exchange-traded-commodities) is that, unlike futures contracts, they’re super easy to access: anyone can buy in. While lacking futures’ leverage, ETFs replicate gold price performance by either holding physical bars or themselves investing in gold futures contracts.
That means they handle the burdens of the previous approaches, like storage and insurance costs or the hassle of constantly reinvesting funds into newer contracts. On the downside, there may be cases where the ETF’s performance inevitably deviates slightly from that of the actual gold price.
As you can probably guess by now, you can access gold ETFs through your Wealthyhood account, such as theiShares Physical Gold ETC! This is only if you’re now thinking of adding some gold exposure to your portfolio! 💪🏼
Shares of gold miners
Lastly, you can invest in shares of gold-mining companies. A possible advantage of this could be a regular income: ironically, unlike the metal they unearth, many miner stocks pay a decent dividend. The downside to miner stocks is that they’re volatile, with share prices tending to rise and fall faster than the price of gold itself.
Individual companies may also be subject to a range of idiosyncratic issues including politics, environmental concerns and operational blockage. These can introduce unwanted risks to your portfolio.
Keep in mind that when you invest your capital is at risk and this learning guide is for information purposes only and is not intended as investment advice.