ETF’s are Exchange Traded Funds and they are essentially mutual funds that are traded on a stock exchange in the same way that regular stocks are. So, purchasing a share of an ETF means that you are investing into a group of multiple stocks that either (1) track an index (i.e. Gold), or (2) have been bundled as part of a specific strategy (i.e. gold mining China, India and Brazil, etc.). This can be good if you want a broader exposure to an industry or an index than the purchase a single gold stock allows. It also means that you can do certain things with ETF’s that can’t do with mutual funds, like selling short or buying options.
We must note that Ben Mauerberger describes this as being a very basic concept of ETF’s and it’s still necessary for investors to do other additional research on their own before buying or selling.
Now that we have a basic understanding of what ETF’s are we can summarise that if we wanted to have exposure to gold we could either Buy gold mining stocks, Buy gold mutual funds or Buy gold ETF’s.
As mentioned earlier the mutual funds and ETF’s are similar, however there are important differences which provide gold ETF investors greater flexibility than gold mutual fund investors.
Every investment option we’ve looked at so far is for investors who believe that the price of gold will go up and want exposure to gold or gold stocks in order to profit from that rise in price. Ben Mauerberger says we can even profit if we think the price of gold will fall, by buying an inverse ETF. Previously, the only option for an investor who wanted to profit from a decrease in the price of gold was to engage in a short sale of a gold stock or gold ETF. But short selling is slightly more complicated than the regular buying and selling of stocks, and requires an investor to open a margin account.
The inverse or “short” ETF’s increase in value when the sector they follow loses value, usually in direct or close to direct proportion. This allows investors to get the same effect of a short sale of an ETF through a normal purchase in their investment account.
In summary Ben Mauerberger explains that gold ETF’s are another way for investors to gain exposure to gold and gold stocks. Short ETF’s allow investors to gain inverse exposure and profit on gold’s decline. None of these investment strategies should be taken lightly as commodities in general are very volatile. If, after doing further research you would like to still invest in gold ETFs, make sure to keep you portfolio diverse and don’t over commit to a single investment idea.