Invest in Commodities through Gold ETFs - dummies

Invest in Commodities through Gold ETFs

By Amine Bouchentouf

Exchange-traded funds that offer exposure to commodities are a popular investment gateway for folks who don’t want to mess around with futures contracts. Signaling gold’s importance, one of the first commodity ETFs to hit the market is, you guessed it, a gold ETF. Currently, you can choose from two gold ETFs:

  • 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.

  • StreetTracks Gold Shares (NYSE: GLD): The StreetTracks gold ETF is the largest gold ETF on the market. Launched in late 2004, it holds about 12 million ounces of physical gold in secured locations. 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 to get exposure to physical gold without actually owning it.

Find out about the fees and expenses associated with each of the ETFs mentioned. These ETFs have to pay a number of entities to actually hold physical gold, so inquire about any storage fees. These fees are in addition to the general fund expenses, such as registration and administration fees. Carefully consider all expenses and fees, because they 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. StreetTracks, however, holds more physical gold and, more importantly, offers you more liquidity than the iShares ETF.