Forex Articles

Exchange-traded Fund (ETF) Investment

There are multiple forms of investment in gold for retirement. Investment in exchange traded funds (ETF) is growing very popular. Mutual funds became a very familiar financial instrument. Both of those kinds of investments offer convenience. Exchange traded funds became a popular investment vehicle. Generally ETF are included of a group or basket of funds which monitor a particular marketplace index. They’re traded as individual stocks and are recorded on the main stock exchanges. The financial instruments making up the Exchange-traded fund are known during the time of purchase. Gold ETFs are of two types: the first kind owns physical gold, the second kind invests in futures contracts.

Since the first kind owns physical gold, the costs of the Exchange-traded fund should follow carefully the spot cost of gold. The spot price is the cost for immediate delivery, i.e., within days. However, due to happenings in the futures market like contango and backwardation, the second kind of Exchange-traded fund does not always track as strongly with the spot price of gold. In the futures marketplace, when distant delivery months costs are progessively less it is termed backwardation. Contango is the common scenario where distant delivery months costs are increasingly higher. Gold mutual funds are a basket or pool to be issued by firms involved with mining, processing or supply of gold and perhaps other precious metals.

Firstly, mutual funds aren’t traded on the stock exchanges. These funds can be sold by banks, by intermediaries or directly from the fund itself. By the way, even when a bank sells a particular mutual fund, FDIC insurance does not insure this. Each share of the mutual fund characterizes the makeup of holdings in that fund. Unlike ETF, mutual funds orders may only be filled towards the end of the day. The actual structure of the fund might not be known except quarterly. In case you want to get out from the fund, you’ve to redeem your shares with the fund.

Both of those financial instruments make it simpler to participate in cost movements of gold. Gold mutual funds have all of the inherent issues of the underlying gold or valuable metals mining stocks. Gold mining stocks might not follow the cost movement in gold. Purchasing an Exchange-traded fund means you’re purchasing a paper illustration of gold. In case of ETFs backed by gold, the gold stores might not be audited. With future contract based ETFs, changes in the market might be disastrous.