Gold Spot Prices
Silver Spot Prices

What are Gold & Silver ETF’s

Another way to gain access to the gold and silver market without buying physical stocks of either precious metal involves purchasing from an established gold and silver exchange. An Exchange Traded Fund specializes in allowing precious metal investors to participate in the global gold and silver markets without the burdens associated with taking physical possession of the bullion. Each share of the trust that an investor purchases represents a fractional, undivided ownership of that trust, which is in turn backed by the assets of the group.These buying mechanisms not only introduce more people to the precious metal market, but it also allows organizations that lack the capacity to store bullion physically, a pension fund for instance, to participate in the precious metal trade.

Owning shares in an Exchange Traded Funds group does not translate into ownership of physical gold, however. For a shareholder to take physical possession of their gold or silver, they would need to be dealing in share blocks of 100,000 and 50,000 respectively. Clearly, this is out of the reach of most investors, so selling their paper shares is the more viable option.

If you were looking into entering the exchange traded funds game, you will need to know about two important Exchange Traded Funds groups: SPDR Gold Shares ETF and iShares Silver Trust ETF.

SPDR Gold Shares ETF (GLD)

The SPDR Gold Shares Exchange Traded Funds group first began trading on the New York Stock Exchange in 2004 under the listing symbol GLD. In the dozen years since, the fund has grown to approximately $33 billion in gold assets. The exchange was conceived of as a way for investors to enter into the gold market without the cumbersome hassles associated with taking physical possession of the bullion you purchase. When you purchase a share of GLD on the stock exchange, each purchased share represents a fractional, undivided ownership in the trust. Designed to mimic gold prices, minus the fees and expenses of the fund, investors make or lose money based on the movement of the price of gold. The fund’s assets consist of gold and cash, which is primarily stored in the form of 400 ounce London good delivery bars and held in the HSBC USA NA bank vault in London.

iShares Silver Trust ETF (SLV)

In the same manner that SPDR Gold Shares ETF makes the gold market available to more investors, iShares Silver Trust ETF does for the silver trade. With about $6.5 billion in assets on deposit in the form of 325 million ounces of silver London good delivery bars stored in London, New York, and other authorized locations, purchasing a share of SLV provides you with a fractional, undivided ownership in the trust. Providing a cost-effective entrée into the silver market, the fund began trading on the New York Stock Exchange in 2006, and designed to mimic the movement of the silver market absent the costs and fees associated with operating the fund.

Counter Party Risk

Since you rarely take physical possession of your gold or silver investment, there are certain counter party risks involved with investing your money in these funds. Specifically, concerns might arise from liquidity issues or accounting problems. Owning paper stocks backed by gold and silver is different from owning stocks of gold and silver. One of the allures of the latter ownership method is knowing that in the event of a social, economic, or political upheaval you have a tradable commodity, but shares in exchange traded funds will not be exchangeable with the ease of physically possessed metals.

Advantages of Exchange Traded Funds

Precious metal ETFs provide a wealth of access to investors who would otherwise not be able to enter the global gold and silver markets. This low risk, high potential investment vehicle allows investors to participate with smaller cash outlays, and a resultant smaller dollar risk should the market turn against their position. If you are looking to enter the precious metals market, and don’t mind not taking physical possession of your investment, an exchange traded funds group might the ideal investment approach.

Brands We Review