A gold ETF consist of only one asset, which is of course gold. But, the fund might also invest in either future contracts or gold based derivatives. When you own a gold ETF, you do not actually own any gold. What you own is the right to participate in the profits if gold does happen to increase in price. The inverse is also true, if gold decreases in value, the price of the ETF you own will also do the same.
There are many reasons gold EFT’s are so popular. First, you do not have to physically take possession of any gold, to profit from it when its value increases. When you actually can hold gold in your hand, there are cost and risk associated with this and gold EFT’s eliminate them.
The strategy behind a gold ETF is to track and reflect the price of gold. While the assets in the fund are backed by the commodity, the intent is not for an investors to own gold. A gold ETF gives an investor an opportunity to gain exposure to the performance of gold.
Second, gold ETF’s are a way to diversify your portfolio and protect yourself against inflation or a sudden drop in value of your home countries currency. Third, because they invest in future contracts and derivatives, they can and do increase in value faster than the price of gold does itself.
Gold ETF’s can be bought from brokerage houses, financial institutions, or banks that specialize in this form of investment. When you examine the past performance of gold ETF’s, that is no indication of future performance. If one fund substantially out performed another fund, that could mean their managers were taking more risk. That is great when the price is going the way they expect, but not so fantastic when it is going in the wrong direction.