While investing in Gold ETFs is an extremely popular choice, it is not necessarily the right choice for everyone. For many, the choice to invest in Gold ETFs can lead the way to a successful and prosperous business venture, but success can only occur if the investor is accurately aware of all the pitfalls involved in investing in potentially risky Gold ETFs.   

Risk #1: You won’t actually be owning any gold.   

When you invest in a Gold ETF, you are actually investing in a share of the ETF itself, not a share of the gold supply. That means that the money you are paying for your investment is not going towards any actual hard gold assets.   

While gold is often proclaimed to be a great source of reliable and stable investment, that is irrelevant when it comes to investing in a Gold ETF, because you aren’t going to own any gold at all.   

Risk #2: The ETF is vulnerable and so are you.   

Because you are not actually investing in any tangible gold bars, the system is vulnerable to economic collapse. If a rough patch hits the economy, your ETF is likely to suffer. Since you do not have a tangible product, you will be left holding the economic damage and nothing else.   

Risk #3:The Gold ETFs put you at a high risk of fraud.   

Simply put, with no required bars of gold to invest in, you are putting your trust that any gold exists into accountants and other individuals whose solitary goal is to make a profit off of you. Some of these individuals might be worthy of your trust, but many are not.   

Without any tangible product, it becomes very difficult to separate which of your associates trying to sell you Gold ETFs belong to the trustworthy category, and which belong to the fraudulent category.   

Despite the risks, many people are willing to invest in a Gold ETF because it is one of the easiest ways to invest in gold. If you are interested in making a Gold ETF investment, diversify your investments.   

Do not put all your investment eggs into one Gold ETF basket. Purchase more than one Gold ETF. One investment might be able to cushion the fall of the other, if it turns out to be a mistake.   

About the Author: Shaun Connell runs a gold investing blog “Learn Gold Coins” and provides tutorials for those wishing to buy Gold Coins, invest in a gold ETF, or anything else related to gold.   

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Investors have turned to gold ETFs as a safe haven during the recent stock market turmoil.  They offer a great way to protect you against risk in your portfolio during uncertain times. We have put together some other ETF options for your viewing below:       

LONG:       

The investment SPDR Gold ETF (NYSE: GLD) seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation.       

The investment ETF (NYSE: GDX) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the AMEX Gold Miners index. The fund generally normally invests at least 80% of its total assets in common stocks and American depositary receipts (ADRs) of companies involved in the gold mining industry. The fund is nondiversified.       

The Funds ETF (NYSE: GDXJ) investment objective is to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors Junior Gold Miners Index (the “Junior Gold Miners Index”). For a further description of the Junior Gold Miners Index, see “Junior Gold Miners Index.”       

The objective of ETF (NYSE: SGOL) the newly listed shares is to reflect the performance of the price of Gold bullion, less the Trust’s operating expenses. The Trust is open ended and is designed for investors who want a cost-effective(1) and convenient(2) way to invest in Gold as well as diversify their Gold holdings.       

The investment ETF (NYSE: UGL) will seek to replicate, net of expenses, twice the performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The fund normally invests assets in financial instruments with economic characteristics twice the return of the index. It may employ leveraged investment techniques in seeking its investment objective.       

The investment ETF (NYSE: DGL) seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Liquid Commodity Index – Optimum Yield Gold Excess Return. The index is a rules-based index composed of futures contracts on gold and is intended to reflect the performance of gold.       

The investment ETF (NYSE: DGP) seeks to replicate, net of expenses, twice the daily performance of the Deutsche Bank Liquid Commodity index – Optimum Yield Gold Excess Return. The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.       

The objective ETF (NYSE: IAU) of the trust is for the value of its shares to reflect, at any given time, the price of gold owned by the trust at that time, less the trust’s expenses and liabilities. The trust is not actively managed. It receives gold deposited with it in exchange for the creation of baskets of iShares, sells gold as necessary to cover the trust’s liabilities, and delivers gold in exchange for baskets of iShares surrendered to it for redemption. The trust is not an investment company registered under the Investment Company Act of 1940 or a commodity pool for purposes of the Commodity Exchange Act.       

SHORT:       

The investment ETF (NYSE: DZZ) seeks to replicate, net of expenses, twice the inverse of the daily performance of the Deutsche Bank Liquid Commodity index – Optimum Yield Gold Excess Return. The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.       

The investment ETF (NYSE: GLL) will seek to replicate, net of expenses, twice the inverse daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The fund normally invests assets in financial instruments with economic characteristics inverse to the index. It may employ leveraged investment techniques in seeking its investment objective.

Related posts:

1. Gold Trading: Physically-Backed Gold ETFs Provide Convenience For Investors (GLD, IAU, SGOL, PHYS)
2. Gold Investors: How Low Can Gold ETFs Really Go? (GLD, IAU, GDX, GDXJ, DZZ)
3. Shorts May Prey On Serious Problems In Europe (SPY)
4. Traders Don’t Care About Long-Term Problems, But You Should (SH, DBA, GLD, SLV, TLT)
5. Investors: Why I’m Rearranging My Gold and Silver ETFs (GLD, SLV, AGQ, ZSL, DZZ)

NYSE:GDX, NYSE:GDXJ, NYSE:GLD, SGOL