No investment offers risk-free profits. It’s functionally impossible. We live in an inherently risky universe for humans, especially for investors. Gold’s value can fall in the market in the short-run. The dollar’s value will certainly fall in the long-run. Farmland can be in a bubble, stocks can be poised for a crash, bonds can be defaulted on — nothing is risk free.
Understanding the nature of gold ETFs is important for investors who are looking to maximize security while still getting exposure to gold. We’ll look at the pros and cons, and then end with the possibilities that are profitable.
The Risk Of Gold ETFs
Gold ETFs are almost always non-redeemable, meaning if you own “gold” through the ETF, you can’t ever actually get physical delivery. Of course, this means that gold exists as a tracking device — you own shares in an ETF, not actual gold. This is critical to understand.
Fundamentally, this means that if something goes wrong, you don’t have any gold. You don’t have even a claim to any gold. And you can’t trade those shares for gold. This is risky for those who expect bad things to happen in the future — you might have spent thousands on “gold”, only to find out you don’t actually have any when you need it most.
In addition, if things actually get “bad”, there’s a good chance that paper asset and corporations are fundamentally changed. There’s no telling what could happen. Government could commandeer large financial institution’s and bank’s holdings of gold. If you own it in physical form, you have less of a chance of being “found out”.
The Pros of Gold ETFs
Gold ETFs are fairly secure for he short-run, and are pretty cheap. If you want to speculate in gold, buying American Eagle coins, for example, is expensive, bulky, and it’s a little dangerous to carry piles of gold around. If you’re looking for short-term trading, an ETF like GLD can certainly work.
But an ETF isn’t the only option. For traders who want a cheap way to trade gold in the short run, there are other options. BullionVault is partly owned by the Rothschild family, and it allows people to daily trade in gold — while offering delivery for people with substantial assets if they request it. It’s similar to an ETF, but it’s safer because of the redemption factor. It’s also great for silver trading.
For those looking not to day trade but for long-term exposure, SilverSaver.com is probably the best option. You buy gold and silver slowly overtime — automatically every month — and can have them deliver it at any time. It allows people to build up precious metals without over-thinking it. This is the company I use.
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