The value of investing in gold ETFs has been much debated since, led by SPDR Gold Shares (NYSE: GLD), it began its ascent three years ago. Since then, a lot of people have made a lot of money off of gold. Beginning in 2008, when the global recession first struck, GLD has gained an average annualized 20%-plus. Prices have been up again in the aftermath of the earthquake in Japan as investors demonstrate a renewed interest in the safe-haven that is the Gold exchange traded funds (ETFs). But the question remains, even as it takes its place as the most actively traded contract for April delivery, up $9.30, and selling at $1,421.80 an ounce, is it actually worth its weight in gold?
Well the answer is probably not, because gold, unlike investing in something like Coca-Cola or crops another product that will likely sell more as the population grows, gold doesn’t produce anything. There is no income of outcome.
With gold, like any precious metal, the investment is based on the price, rather than the productivity of the asset. The price is dependent simply on what other people decide it is worth If one day people decide that Gold is just too high, the various ETFs devoted to Gold could plummet. It probably won’t happen today or tomorrow, but for investors looking for something long term rather than a speculative play on the market’s instability, a gold ETF may not be the right move.
Super-investors like George Soros explain that gold is time sensitive. Beginning several years ago, Soros was snapping up gold ETFs in spades, but he doesn’t consider the investment to be a safe bet for a play for long-term stability.
“I called gold the ultimate bubble which means it may go higher but it’s certainly not safe and it’s not going to last forever.” Soros first made the comment at the World Economic Forum, around the same time that his hedge fund held 5.24 million shares of the SPDR Gold Trust.
Clearly, still on an uptrend, the bubble hasn't burst yet. There continue to be money money to be made from Gold but in terms of an ongoing and stable solution, it isn't.
Investors thinking about putting money into gold ETFs now should be aware of a few things. One, it’s unlikely that someone investing today is going to so anywhere near the level of returns as their counterparts who put their money in gold back in 2007. The second, is that there are several different paths to pursue investing in gold ETFs
While the preferred and most discussed ETF has been GLD, prices are so high now, that getting a significant stake that has the potential to provide a large return will be expensive. It can tie up a lot of money and with the uptrend slowing down slightly, those funds might be better allocated elsewhere.
Elsewhere, might be other gold ETFs like gold future of gold mining.
Market Vectors Gold Miners (NYSE: GDX) , might be a good bet for someone looking for an alternative ETF. This fund invests in companies that find and extract the gold from the ground. The companies spend the same amount procuring the gold from the ground no matter what it’s selling for, so the miner’s make money from the margins. There is also Market Vectors Junior Gold Miners (NYSE: GDXJ) and Global X Gold Explorers (NYSE: GLDX)for people who find this attractive. The latter is up 2.2% today, trading at 18.23.
Another option is gold futures, which rely on speculative pricing for future months. For someone interested in this a solid option that has been doing exceptionally well is PowerShares DB Gold Fund (NYSE: DGL). There are pros and cons to investing in futures and this could be higher risk in the event that the prices for the immediate month are higher than those for the month that follows.
Any gold ETF purchased in the near future should be carefully monitored for any sign that attitudes toward gold might be changing.
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