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Buying Gold: ETFs and Bullion

This article was written by in Investing. 6 comments.


Over the past few weeks, the price of gold (expressed in dollars) has increased to all-time highs. This is true if you don’t adjust historical prices for inflation. This and the price increase that began for the recession have fueled a surge in interest in investing in gold. Investors are looking to ride this wave. I worry that buying any commodity when it’s at its highest levels is asking for trouble, so I won’t be buying gold any time soon.

If you want to buy gold, here are the options that are available to you.

Invest in an ETF that tracks the value of gold. This is likely the easiest way to add gold to your portfolio. The SPDR Gold Trust ETF (GLD) is the most popular. This ETF buys physical gold and sells shared based on one-tenth an ounce. For investors who are worried about the stability of the financial system of the United States or the world, buying paper gold defeats the purpose of investing in gold. Many look for investing options outside the system of stock brokers and investment managers, but buying ETFs keeps the financial industry in the mix.

If you’re willing to take on more risk, however, you can use an ETF to double down. The ProShares Ultra Gold ETF (UGL) tracks twice the performance of the price of an ounce of gold. If the price of gold rises 10%, this fund will increase 20% in the same time period. Don’t forget to note that if the price of gold falls 10%, the fund will decrease 20%.

Do you think that there has been too much fuss over gold and it’s now overpriced? You may be willing to back your opinion with your finances. There’s an ETF for you. The ProShares UltraShort Gold ETF (GLL) is the inverse of UGL. If the price of gold falls 10%, the investment will increase 20%.

Invest in gold bullion. The advantage of gold bullion is that it’s a physical investment. You keep the investment in your hands, so there will never be any concern about converting a paper investment to something physical if the need arises. The bullion is delivered in the form of coins or bars. You can buy bullion produced by the United States Mint in a denomination of one ounce, one half ounce, one quarter ounce, and one tenth ounce, and other government mints offer different configurations. There are several options for bars, including a ten ounce bar or a one kilogram bar. Bullion is very liquid, so you can sell to a bullion dealer at any time for a reasonable market price. Avoid selling to a “fast cash for your gold” outfit.

Although you avoid the traditional investment industry to buy physical gold, you deal with other problems. Bullion dealers take a cut of every transaction, just like investment brokers. With a physical investment, you’ll want to consider paying for holding the investment somewhere secure if you’re not comfortable leaving gold around your house.

People turn to gold in uncertain financial environments because of its history of use as currency throughout the world. People claim gold has an intrinsic value, but it’s a commodity just like oil or wheat whose value is based on supply and demand. When any commodity is viewed as currency or used for speculation, the demand changes.

Published or updated October 4, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 6 comments… read them below or add one }

avatar Dan

Buying when the price is the highest is generally not the best investment advice.
another commodity that will be useful in the new economy is lead
either 38 or 45 caliber
very liquid and easy to sell.

also helps to protect your gold!

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avatar The Latter-day Saver ♦706 (Dime)

@ Flexo: Thanks for the information about the inverse ETF. I will have to check into that.

@ Dan: Ha Ha, nice one.

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avatar Gold ETF Guy

Guys, be careful with those leveraged ETFs. They are great for trading but being on the wrong side of the trade, either long or short, can be pretty painful. They aren’t meant to be held as a position for longer periods of time either, look at a long term chart — the leveraged ETFs don’t track gold longer term, they track the daily price.

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avatar Evan

I am not really into investing in Gold, but if sh!t really hit the fan – wouldn’t it be near impossible to actually get money out of the etf vs. actually having the gold on your person?

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avatar Rassah

If sh!t really hit the fan, and people need things like food, matches, or shelter, why would they want to trade their goods for gold? It’s just shiny and rare, and is only worth something because we agree that it does, like fiat currency.

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avatar Dwight

I guess investing and holding some gold in your portfolio is a good idea to stabilize your investment. Traditionally, gold doesn’t seem to do as well as brokers would like you to believe, but it is somewhat stable.
Cash is king in this economy seeing that most assets are highly depreciated and waiting for a bounce back.

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