Gold Bar ETFs: Hedge Your Portfolio With Gold
Gold has been a valuable commodity for centuries.
Gold has historically been used as a form of currency, jewelry, and other decorative items.
Today, many investors view gold as a safe investment to protect their portfolios from the uncertainties of the financial system.
Gold bar ETFs offer an easy way to invest in gold without having to deal with the hassle and security risks of buying and storing physical gold yourself.
Is Gold A Good Investment Hedge?
In a bad recession, people may doubt the overall financial system. This could motivate people to turn to historic “safe havens” such as gold or silver to hedge against the modern financial system.
If you’re unfamiliar with the term, “safe haven” refers to an asset that maintains its value as volatility in other markets (such as the stock market) increases.
Gold has been used as a form of currency and investment for centuries. So gold is considered a good investment hedge.
Gold prices usually go up when the stock market is down and fall when the stock market is up.
Here’s a chart from GoldSilver showing the performance of gold and silver during the biggest stock market crashes.
What ETFs Hold Gold Bars?
Gold bar ETFs offer investors exposure to the gold market without having to take physical possession of the metal. The two ETFs listed below hold gold bars in vaults on behalf of investors who invest in their ETFs.
Popular Gold Bar ETFs:
$GLD (SPDR Gold Shares ETF)
GLD is the largest and most popular gold ETF. The fund has over $52 billion in assets under management. GLD is one of the most liquid gold ETFs, with an average daily trading volume of over 5 million shares.
GLD also has an expense ratio of 0.40%.
$IAU (iShares Gold Trust ETF)
IAU tracks gold spot price using gold bars held in worldwide vaults. The fund has over $26 billion in assets under management.
IAU also offers a low expense ratio of 0.25%.
Are gold ETFs as good as gold bars?
Since the gold ETFs listed above hold gold bars in vaults around the world, they are just as good as buying physical gold.
Many investors prefer gold bar ETFs because they offer all the benefits of gold ownership without the need to store or insure physical bars of gold.
However, there are also some downsides to gold ETFs.
For example, they typically have higher fees than buying gold bars.
Additionally, the most significant risk that comes with these gold bar ETFs is the counterparty risk. Which is the risk is that the other party (the gold bar ETF) won't fulfill its required commitments.
Unlike ETFs, physical gold is an investment you physically hold. There is no counterparty risk. You don’t have to worry about a third-party holding your gold if you have it in your possession.
Final Thoughts: Gold Bar ETFs
Gold is generally seen as a way to diversify your portfolio away from the modern financial system. Many investors see gold as a hedge against inflation and economic uncertainty.
Gold shares ETFs offer investors exposure to the gold market without having to take physical possession of the metal. And make it easy for investors to buy and sell their gold with the press of a button.
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As Always: Buy things that pay you to own them.
-Josh
Blog Post: #067
