A gold ETF is an exchange-traded fund that tracks the price of gold. Gold ETF’s can be found on major stock indexes. One example is SPDR gold trust with the ticker symbol GLD; it is traded on the NYSE. The intention of these funds is to allow investors to invest in the price action of gold. Many of these ETF’s are not backed by gold, or are backed by only a very small amount of gold. The intention here is to speculate on the value of the spot price only. ETF’s will not give you the same protections that owning physical gold will.

How safe is it to own gold ETF’s in today’s economic climate? There are a few items to consider. Bear in mind ETF shares are not actually backed 100% by physical gold, but a combination of gold and a mechanism of derivatives. The actual amount of physical gold an ETF holds is rarely disclosed and covertly disguised in a labyrinth of accounting figures. Try asking a stockbroker what percentage of the ETF is physical gold, and furthermore if you wanted your gold, would you ever get it?

There is also counterparty risk involved in owning gold ETF’s.  For example, in September 2008, shareholders in ETF Securities backed by AIG were unable to trade popular commodity securities, due to concerns over the future of their backer AIG.  Banks and brokerages actually stopped making markets in the Exchange Traded Commodities (ETCs) backed by AIG, and sold by ETF Securities (ETFS). Consequently the price of the stocks also plummeted over 50% due to the concerns for AIG’s future.

Also remember the physical bullion used to back whatever portion of an ETF is confiscatable by the government. The U. S Government did in fact confiscate gold in 1933 due to extraordinary economic conditions. Should the current economic crisis reach that point again and the government again confiscates gold, the wealth insurance you need most will be taken away.Gold ETF’s can be more expensive to hold than physical gold. With physical gold there is a one-time fee. As opposed to ETF’s where there are many fees starting with one-time fees to buy and sell and annual fees like management expenses, insurance expenses, regulatory fees, exchange fees, accounting expenses, marketing expenses, legal expenses and storage expenses.

Gold ETF’s will give you exposure to the price action of gold, which is great for speculation purposes. What it can’t give you is the safety and security of owning the physical metal itself. Keep in mind physical gold will still give you access to price action.

Those people who decide to buy and own physical gold, their stored value remains more stable than those who own ETF’s. As the value of the dollar decreases, it takes more dollars to buy an ounce of real gold. The “share price” of actual solid gold does not deteriorate as a result of any financial meltdown. Indeed the value of these gold holdings is very likely to go up, and the gold price will continue to increase with the addition of more people seeing it as a safe haven in these stressful times.

Here are some examples of Gold ETF’s traded today:

Ultra Gold ProShares UGL
E-TRACS UBS Bloomberg CMCI Gold ETN UBG
PowerShares Global Gold & Prec Metals PSAU
iShares COMEX Gold Trust IAU
ELEMENTS MLCX Gold TR ETN GOE
UltraShort Gold ProShares GLL
SPDR Gold Shares GLD
Market Vectors Gold Miners ETF GDX
Market Vectors Junior Gold Miners ETF (GDXJ)