Is a Gold ETF (Exchange-Traded Fund) right for you?

The answer depends on why you’re buying gold in the first place.

An ETF allows you to buy and sell gold without touching or storing it.

ETF funds are backed by gold, but there is probably less gold behind them than you might think. The principle is the same as the way banks operate - if they have $1mm on deposit from customers they can lend a multiple of that amount to other customers. If everyone turns up at the bank on the same day and asks for their money, there’s not enough to go around. We saw that a few years ago in Cyprus, during the worst (so far) of the Euro meltdown.

So a fund may say it’s worth a trillion dollars, but no one believes there’s a trillion dollars of physical gold behind it.

Another aspect of ETFs that’s often missed is that the gold any of these funds holds is not allocated to customers. So there is no vault with your gold in it. There’s no lock-box holding what you have purchased.

An ETF is essentially a paper-based asset. It’s backed by some gold, but you have no direct ownership of any one piece of gold. And the gold that is held by the ETF is probably somewhere far from you - maybe in London. No doubt it’s well protected, but you can’t get at it. You only hold a paper, or digital, share in the fund built on top of that gold. Or rather, balanced on top of that gold, like an inverted pyramid.

Does that sound attractive to you? The chances are that's not what drew you to the idea of gold.

Many people buy gold because they want a tangible asset - something they can feel in their hand, something that will survive fire, flood, or financial meltdown. They know gold has held value and has been a trusted store of wealth since the earliest days of human civilization.

If they choose to store their gold with a depository or a bank, they want to know their gold has their name on it - that it’s theirs, owned by them, not fractionally, partially, notionally "allocated" to them.

They want to know they can withdraw their gold, not as a check in payment for their ETF share, but as physical gold that they can pass on to the next generation, that will provide a hedge against uncertainty in these most uncertain times, and those to come.

The want to know that whatever happens to the world economy, and the financial system, and any of the currencies now in use, including our own, they will still have an asset with real, tangible value.

So if you want to trade paper, an ETF may work for you.

If you want to own gold, Rosland Capital can help. Get free information now.