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Purchasing Gold through Exchange-Traded Funds

Exchange-traded funds (ETFs) offering exposure to commodities are a popular investment gateway for folks who don’t want to mess around with futures contracts. Currently, investors have two gold ETFs to choose from,

  • StreetTracks Gold Shares (NYSE: GLD): The StreetTracks gold ETF is the largest gold ETF on the market today. Launched in late 2004, it holds about 12 Million Ounces of physical gold in secured locations. (That’s more than $7 Billion worth of gold in 2006 bullion prices.) The price per ETF unit is calculated based on the average of the bid/ask spread in the gold spot market. This fund is a good way of getting exposure to physical gold without actually owning it.

  • iShares COMEX Gold Trust (AMEX: IAU): The iShares gold ETF holds a little more than 1.3 Million Ounces of gold in its vaults. The per unit price of the ETF seeks to reflect the current market price in the spot market of the ETF gold.

Make sure to find out about the fees and expenses associated with a ETF. Because these ETFs actually hold physical gold, they have to pay a number of entities to make this possible, so ask about any storage fees. This is in addition to the general fund expenses such as registration and administration fees. Carefully consider all expenses and fees because these will have a direct impact on your bottom line.

Because both the StreetTracks and iShares ETFs track the price of gold on the spot market, their performance is remarkably similar — at times, it’s actually identical. Therefore, if you can’t decide between the two, consider going with StreetTracks because it holds more physical gold and, more importantly, it offers you more liquidity than the iShares ETF.

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