Investing Gold with ETFs

Gold has been a symbol of wealth since ancient times. It is aesthetically pleasing, physically stable, and scarce. Though gold is no longer a circulating currency since the appearance of paper money, it remains a popular investment.

When it comes to investing in gold, your first thought may be buying physical gold such as gold bars or coins. However, the cost of purchasing these items can be quite high, and they require a safe storage place. Additionally, the low liquidity of physical gold makes selling more difficult.

However, there are alternative ways to gain exposure to gold, such as through exchange-traded funds (ETFs).

ETFs have several potential advantages over physical gold, including

1. Convenience and high liquidity - ETFs offer easy online trading during market hours without the need to visit a physical store. This makes them highly liquid and accessible in comparison to physical gold.

2. Transparent pricing - ETF prices are openly displayed on the exchange, allowing investors to check their value at any time and avoid the possibility of being exploited by price differences offered by physical gold buyers.

3. Lower entry fees - Compared to purchasing physical gold, ETFs generally have lower entry fees, which means that investors can start small without having to pay for an entire gold bar up front.

4. No storage costs - Since ETFs are stored electronically, there is no need to worry about loss or theft of gold, thus eliminating concerns about storage costs.

However, there are also some relative disadvantages to investing in gold through ETFs:

1. Fluctuating prices - ETF prices tend to have higher volatility than physical gold prices.

2. Fees - When trading ETFs, investors must pay fees such as transaction fees and management fees that can add up over time.

3. No physical gold - Unlike physical gold, ETF investors do not have possession of the actual gold itself. Additionally, most ETFs cannot be directly redeemed for gold.

4. Counterparty risks - There is a risk of counterparty default if the issuer of the ETF goes bankrupt. If this happens, the gold ETF may lose its value, leaving investors with nothing.

Are you deciding whether to invest in ETFs or physical gold? The answer depends on your investment goals. If you are concerned about global financial market risks, don't plan to trade frequently, or have inheritance needs, then investing in physical gold may be more appropriate. On the other hand, if you want to diversify your asset allocation or hedge against short-term stock market volatility, ETFs could offer a more flexible and convenient option.

If you choose to invest in gold through ETFs, there are two main types to consider: gold ETFs and gold miner ETFs. Gold ETFs track the price of gold, while gold miner ETFs track the performance of gold mining companies.

1. Gold ETFs

Gold ETFs track the price of gold and offer similar investment opportunities to physical gold. As the gold price rises, the price of the gold ETF generally also increases, allowing investors to potentially profit from the price difference without owning actual gold bars.

Most gold ETFs track the LBMA Gold Price PM USD, which is announced daily by the London Bullion Market Association and can be viewed as a benchmark price for trading physical gold.

To help ensure the net asset value of the ETF moves in line with the gold price, some large-scale gold ETFs hold significant amounts of physical gold and buy or sell corresponding amounts based on the latest net asset value of the ETF. Each piece of physical gold has a unique identifier, and the issuer updates the list of inventory every day for investors to check.

In addition, there are leveraged or inverse ETFs in the gold ETF market, which aim to magnify returns or deliver the opposite performance to the underlying asset through gold futures contracts and other tools.

It is worth noting that gold ETFs do not pay dividends to investors. For investors seeking dividends, gold miner ETFs may be a better option.

2. Gold miner ETFs

Gold and gold miner ETFs may seem similar, but they have fundamental differences. Gold ETFs are backed by a basket of physical gold or gold futures, while gold miner ETFs are supported by a basket of gold mining companies stocks.

In theory, the trend of gold prices is positively correlated with changes in gold mining company stock prices. When the price of gold rises, it can help push up the stock prices of gold mining companies. Conversely, when the gold price falls, gold miners may also see their stocks decline. However, mining stocks can be influenced by other factors such as market sentiment and company operations. Generally speaking, the volatility of gold mining stocks is higher than that of gold prices. As a result, gold miner ETFs may not be suitable for investors who want to invest in gold for long-term purposes.

Additionally, different ETFs may have different focuses. Some ETFs may focus on large-cap companies, while others may only invest in small-cap companies. This can lead to completely different performances of these gold miner ETFs for the same period. Therefore, before investing in gold miner ETFs, it's important to first check the latest list of their constituents on moomoo.

To find these ETFs on moomoo:

1. Open moomoo and tap Markets > US.

2. Tap ETFs, and you'll see the classification of ETFs.

3. In the Commodity column, tap Gold ETF or Gold Miner ETF to view the specific ETF list.

4. In the list, you can sort using multiple criteria, including changes, volume, and market value.

5. Tap on an ETF, and enter its detailed quotes page to view its "Profile" and "Constituents."

Let's take a recap:

1. Investing in gold through ETFs is usually more convenient, transparent, and cheaper than investing in physical gold directly. However, it comes with higher price volatility, additional costs, no physical metal, and may face counterparty risks.

2. ETFs invested in gold can be divided into two categories according to their underlying assets: gold ETFs and gold miner ETFs, which are essentially different.

3. Gold ETFs track gold prices, are linked to physical gold, and do not pay dividends.

4. Gold miner ETFs track a basket of gold mining stock prices, which are related to the price of gold but can also be affected by other factors. They have greater volatility than gold ETFs and may pay dividends periodically.

5. With moomoo, you can quickly find gold and gold miner ETFs and view detailed information on each ETF.

Which approach do you think is better when investing in gold? If you had to choose between gold ETFs or gold miner ETFs, which would you select and why? Share your unique perspective and discuss it with everyone.