ET Wealth: Advantages and disadvantages of investing in gold ETFs? (2024)

FAQs

What is the disadvantage of gold ETFs? ›

Downsides of gold ETFs include exposure to counterparty risk, annual fees, and the possibility the fund fails to properly track the price of gold. Another drawback is that you don't physically own the gold.

There are several risks to investing in gold, including as follows: Price volatility: The price of gold can be volatile, and it may fluctuate significantly over short periods. This can make it difficult to predict its value and can make it a risky investment.

ETF Fees

As previously mentioned, you won't actually gain ownership of physical gold with this type of ETF. With gold, you'll encounter fees when making your purchase but you'll have full ownership afterward. With gold ETFs, however, you'll be hit with charges for the entire life of your investment.

People may choose to invest in gold ETFs rather than physical gold because owning shares in a gold ETF is more attainable and easier than holding physical gold. ETFs backed by physical gold can provide that exposure and diversification with a lower entry cost than buying gold bars or coins as an individual investor.

Portfolio Diversification: Gold ETFs are a great way to diversify your investment portfolio as they offer exposure to the price of gold, which has a low correlation with other asset classes. By adding gold ETFs to your portfolio, you can reduce the risk of your portfolio and achieve more stable returns.

Sprott Gold Miners ETF has a dividend yield of 1.22%, though it only holds 33 different companies. The VanEck Vectors Gold Miners ETF holds 56 different companies and has a dividend yield of 1.15%. The iShares MSCI Global Gold Miners ETF has the highest distribution yield within article with a current yield of 2.08%.

Stocks have generally performed better than gold over the years, but there can be exceptions.

Is it better to keep gold or cash? ›

Gold offers a hedge against inflation

Gold is a unique safe haven asset because it acts as an inflation hedge. This is due to gold's historical tendency to climb in value when the dollar falls. So, the precious metal may help you maintain the value in your portfolio during periods of high inflation.

Gold prices are expected to hit $2,500/oz by the fourth quarter of 2024 and $2,600/oz by the end of 2025.

Gold has a limited supply and an enduring demand. In other words, gold tends to maintain its value over time regardless of what various world currencies do. Gold ETFs, which trade on major securities exchanges just like shares of a stock, are a simple and convenient way to combat inflation and protect your portfolio.

ETFs are designed to track the market, not to beat it

But many ETFs track a benchmarking index, which means the fund often won't outperform the underlying assets in the index. Investors who are looking to beat the market (potentially a riskier approach) may choose to look at other products and services.

Market risk

The single biggest risk in ETFs is market risk.

Geol also said gold ETFs lost their attractiveness to other platforms as the Finance Bill 2023 removed its tax benefit of lower rate with indexation even as other modes of gold investment continue to enjoy their respective tax benefits.