Investing in gold ETFs from the US stock market
Transcript
Hi, this is Viram from vested and today we are going to be talking about investing in gold through US ETFs.
Gold as we all know is one of the most respected metals across the world due to its value and rich cultural history. But how did gold actually become so popular?
It’s interesting. So, in earlier times kings used to constantly change and so with them currencies across kingdoms would also constantly change. However, gold reserves were always stable and reliable and so over time people vested their faith in gold and started converting their wealth and keeping it in this precious metal.
Today, gold helps act as a hedge against inflation and deflation. It is not only a good portfolio diversifier, but it also acts as a global store of value. Additionally, gold can also help protect against geopolitical as well as macroeconomic uncertainties.
Time and again gold has proved to be a safe way to store money for the future.
Time and again gold has proved to be a safe way to store money for the future.
So now, let’s look at what options you have to invest in gold:
Today you have three primary options:
- Investing in physical gold
- Digital gold
- Gold ETFs
Physical gold:
Physical gold out of all of these has traditionally been the most popular but it definitely is the most inefficient. When you buy gold coins or bars, you have to pay an additional GST on it, along with that you also have to pay making charges and commission to the seller. For gold, prices are not standardized across different sellers. Along with that there’s also the risk
of theft so you have to make sure that you store it properly. And lastly, liquidity is also not as easy as other digital options because you have to go through an effort to sell the gold when you want to.
Digital gold:
The next option you have is digital gold and this option has become quite popular recently.
What is digital gold?
It’s very similar to physical gold but you can buy and sell it online and you don’t need to have the entire hassle of storing it because somebody else stores it for you. So it’s definitely better than physical gold but it has its downsides.
Digital gold is not regulated by any entity.So, there is always that safety concern, along with that you have to pay three percent GST, and importantly about two to seven percent in spreads when you buy or sell this digital gold. It makes it very expensive.
Sovereign gold bonds:
The last option to buy gold is gold ETFs. But before we get into that let’s quickly talk about one more option that you have in India which is called sovereign gold bonds.
These sovereign gold bonds are a decent option and they allow you to even earn 2.5 percent interest per year in addition to the gold price appreciation. However, the downside right now is that it does not have enough liquidity if you want to go out and sell the sovereign gold bonds in a market.
Gold ETFs:
Okay, so now let’s look at the last option that is gold ETFs. These ETFs are funds that invest in underlying gold and are traded on an exchange so that you can buy them and sell them in an easy manner. While these ETFs charge an expense ratio, the expense ratio is much lesser than the commission or the spread that you might end up paying in the other options.
Through a platform like Vested, you can now invest in the largest gold ETFs in the world. GLD which has about 58 billion assets under management is the largest gold ETF in the world. The second largest is IAU with about 29 billion assets under management.
Of course, you can always invest in India-based gold ETFs but do keep in mind that these ETFs have an expense ratio that is almost double or triple of the us-based gold ETFs.
One last thing before we wrap up is that if you’re looking for an alternative way to get exposure to this precious metal you could also look at investing in companies that mine gold. In the U.S there are ETFs such as RING or GDX that are available that invest in gold mining companies.
Of course these ETFs are at higher risk than the gold ETFs because there is additional company risk involved here.
So, in conclusion, today we looked at the three ways in which you can buy gold: First is physical gold, second is digital gold and third is gold ETFs.
We also looked at why gold ETFs are proving to be an easier and superior way for you to add gold exposure to your portfolio.
Stay tuned for more.