Gold and Silver Exchange Traded Funds

GLD is SPDR’s (Standard and Poor’s Depositary Receipt) symbol for the Gold Shares exchange-traded fund, or ETF. This Gold-based exchange-traded fund opened trading on November 18th, 2004. The fund is listed on the New York Stock Exchange Arca. This ETF was designed to give investors the opportunity to participate in the Gold market without having to take delivery of physical Gold or deal with other attendant issues such as custody or transaction costs.

Put simply, purchasing shares of GLD allows investors to get in on the potential profit of a rising Gold price, though one also assumes the risk of losing money from a falling Gold price. This is because GLD shares are meant to mimic the price of Gold as closely as possible, minus the fees and expenses accrued by the fund.

Each share of GLD represents a fractional ownership of the trust. GLD owns only Gold bullion, though sometimes holds cash. In addition to letting more investors participate in the thrill of the Gold market, GLD can also provide a Gold investment product that funds and pensions can purchase when they do not have the latitude to invest in physical Precious Metals or their derivatives.

The iShares Silver Trust ETF’s symbol is SLV. This ETF opened in April 2006 and is listed on the New York Stock Exchange Arca. SLV is meant to give investors a simple, cost-efficient way to access to the Silver market without having to accept delivery of Physical Silver.

As with GLD, the Gold-based ETF, purchasing shares of SLV could potentially lead to financial gains from a rising Silver price, though one could possibly suffer a loss if Silver prices fall. The fund is designed to mimic the price of Silver minus fees and expenses, so while it moves with the price of Silver, the fund does not trade at Silver Spot Price.

Every share owned represents an investor’s fractional ownership of the trust. SLV, like GLD, may provide an investment vehicle for those interested in Silver investment but are unable to invest in physical Precious Metals.

Owning shares of GLD is nothing like owning physical Gold. This is an extremely important point for potential investors to thoroughly understand. Although the fund is based on Gold or Silver and holds Precious Metals and/or cash as its only assets, shareholders are not guaranteed to receive physical Gold in exchange for their shares. Theoretically, one can go exchange their GLD shares for bags of Gold coins, but it must be done through the fund’s trustee, Bank of New York Mellon.

Now, this is where it gets complicated. The Bank of New York Mellon is not really open to the public. In order for a person holding GLD shares to take delivery of actual physical Gold, the shareholder in question must be an authorized participant and be able to deal in 100,000-share blocks. A 100,000-share block at current market price is about $12,600,000. It goes without saying that this sum may be beyond the resources of everyday investors. The takeaway here is that while exchanging your shares for Physical Gold is technically possible, it is out of reach for most investors, financially speaking, and also involves a process that requires facilitation by a professional broker. SLV shares present the same issues. In order to try to redeem baskets of shares in SLV, one must be an authorized participant and deal in 50,000 share blocks. This is considerably smaller than the GLD standard, but it is still likely prohibitive for most investors.

GLD holds its bullion in 400-ounce London good delivery bars. Visually, that is what you think of when you think of “bars of Gold.” These bars are located in the HSBC USA, National Association Bank vault in London. SLV also holds its bullion in the form of London good delivery bars, but these bars are stored in not only in England, but also in New York and other authorized locations.

Owning shares of a Gold-based ETF like GLD is not the same thing as owning Physical Gold. Physical Gold is an investment you can hold in your hand, and keep in your home should you wish. The near impossibility of taking delivery of Physical Gold based on GLD ETF shares is obviously an issue worth considering if what you want is to actually own Gold. If you worry about potential times of economic or geopolitical crises, you must consider that you may not be able to exchange shares of GLD as money, which you may be able to do with Physical Gold.

Although the fund is designed to mimic the Spot Price of Gold, there are fees associated with investing in an ETF. That being said, owning bullion bear associated costs, too. Compare the fees, and weigh whether or not the act of taking custody of Gold is important to you. It is important to understand how owning Physical Gold differs from owning shares of a Gold-based paper investment product. The same considerations all hold true for SLV.

APMEX recommends discussing the pros and cons of investing with a financial advisor or professional.

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