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Gold ETFs: A Cost-Effective Way to Invest in Gold

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Learn about the benefits of investing in gold ETFs.

description: an anonymous image of gold bars stacked on top of each other.

Gold Exchange-Traded Funds (ETFs) are a popular investment instrument for those seeking exposure to the price of gold. On the other hand, some investors may prefer to invest in physical gold, like gold bars or coins. While physical gold can be a tangible asset, it can also be expensive to store and insure. Gold ETFs can help you gain exposure to gold in a cost-effective way. Here's how.

During the go-go days of growth, gold ETF investments weren't all that popular in many portfolios. But thanks to recent uncertainty, including the COVID-19 pandemic and geopolitical tensions, investors are turning to gold as a safe-haven asset. Gold-backed ETFs and similar products account for a significant part of the gold market, with institutional and individual investors using them to gain exposure to the precious metal.

Before diving into a gold ETF or ETP, investors should understand the nuances of taxes specific to these investment vehicles. Gold ETFs are taxed like mutual funds, which means that investors are subject to capital gains tax when they sell their shares. However, investors may be able to avoid paying taxes on gains by holding their shares for at least one year.

There are multiple ways to gain exposure to gold, from directly purchasing gold bullion to more indirect methods like owning shares of mining companies. However, gold ETFs offer several advantages over other methods. For one, they are more cost-effective than buying physical gold. Additionally, they are more liquid than physical gold, which can be difficult to sell quickly.

Exchange-traded funds (ETFs) backed by physical gold continued to record inflows in April, according to the latest data from the World Gold Council (WGC). The WGC reported that gold ETFs added 170 tonnes ($9.3 billion) in April, bringing total holdings to 3,355 tonnes ($183 billion).

ETFs that offer exposure to the price of gold (XAUUSD:CUR) noticed an injection of investor capital over the past week as the precious metal saw gains. In the week ending May 21, gold ETFs saw inflows of $1.3 billion, the largest weekly inflow in over a month.

This gold ETF hits a new 52-week high. Are more gains in store for this ETF? Only time will tell, but as uncertainty continues to loom, gold ETFs may continue to be a popular investment choice for those seeking a safe-haven asset.

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