How Do I Invest in GLD?
Gold has quickly become an essential asset in many investment portfolios. One effective way of diversifying into it is through GLD, the world’s largest gold exchange-traded fund (ETF).
GLD is backed by physical gold stored in London vaults. Investors utilize GLD for various purposes, including protecting against currency weakness and inflation.
How does GLD work?
GLD provides investors with an innovative way to access the gold market without the hassles and insuring of physical bullion purchases, storage, or insurance costs associated with buying physical bullion themselves. Yet its rising popularity has not gone without some controversy.
Investors often flock to GLD for its promise of ownership of physical gold bullion, yet redeeming GLD shares can be complex. First, an investor must work with an Authorized Participant (AP), which then contact GLD’s trustee, Bank of New York Mellon, for physical delivery before moving onto its custodian, HSBC, for storage purposes.
Forbes notes that both the trustee and custodian for GLD shares have multiple layers of sub-custodians that may impede redemptions during periods of financial or political distress, as well as expose investors to counterparty risk due to GLD shareholders owning paper claims over physical bullion stored at HSBC’s vault in London.
What is the underlying asset?
Gold has long been seen as an ancient monetary asset that many investors view as being protective against inflation and currency debasement, as well as offering diversification in times of political or economic unease – this has contributed to GLD’s recent increase in value.
As an ETF, GLD gives investors exposure to gold prices without incurring storage and insurance costs associated with owning physical metal. Backed by gold bars held in trust, each share represents one-tenth of an ounce of precious metal.
GLD stands out as the largest and most liquid ETF that invests both in gold bullion and mining stocks. Retail investors cannot withdraw the supposed bullion bars that GLD holds; only GLD’s Authorized Participants have that privilege (it involves a complex process). But you can sell shares throughout trading day as usual – providing more direct exposure to gold prices than with futures contracts, which require more complex hedging strategies.
What are the fees?
GLD is the largest gold ETF and therefore one of the more expensive options on offer. It charges a management fee of about half a percent annually to oversee it and therefore gradually diminishes its NAV; although this fee seems relatively minor when compared with physical gold ownership costs.
There are, however, other investment vehicles with lower fees for those looking to invest in gold. For instance, iShares’ gold product provides low management fees of 25 basis points as well as tight bid-ask spreads for traders.
Investors should carefully consider the costs associated with owning and storing physical gold, but an ETF like GLD or its offshoots GLDM and IAU may provide more cost-effective exposure. Your decision on investing will ultimately depend on your risk tolerance and objectives – find more out about GLD at its SPDR provider site.
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