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What is An ETF? Part II

Even though ETFs, or exchange-traded funds, trade similarly to stocks in the stock market, there are important aspects of an ETF investors should know. We previously answered the question of what is an ETF. Now, we look at its considerations in the investment market. While an ETF does trade similarly to stocks, they are commodities, so you are not investing in the physical metal itself. There are several categories of Precious Metals ETFs including the main Precious Metals groups of Gold, Silver, Platinum and Palladium. Investors must determine if they want to hold their investments in paper or physical Precious Metals. Investment goals should always be considered before investing in ETFs or physical Precious Metals. 

Considerations for a Silver and Gold ETF

There are features of an ETF that are vital for investors to acknowledge:

  1. Paper trades are more fluid than physical Gold or bullion. "ETFs are priced and traded continuously throughout the trading day." (NASDAQ) In other words, ETFs are a popular commodity for those who desire to trade quickly if they so desire. This takes vigilance and planning to execute the proper strategy. Owning a paper ETF offers a way to invest without any physical ownership.
  2. Buy-ins for the ETF are easy to track. Buying into an ETF, regardless of which Precious Metal ETF group, offers an easier track to investment. Because ETFs are contingent on buy-ins throughout the day, investors can track the Precious Metals ETF much like investors can track a stock they have invested in.
  3. Multitude of Precious Metals ETFs from which to choose. Much like choosing Silver bullion or Gold coins, there are several varieties of options available in Precious Metals ETFs. Just as an investor is not limited to one Gold bullion or Platinum product, investors have a variety of options in ETFs including Market Vectors Gold Miners ETF (GDX), Velocity Shares Gold (UGLD) and Credit Suisse X-Links Gold Shares (GLDI). Many more are available in Gold, Silver, Platinum and Palladium. (US News - Money)
  4. Selling is easier but it may not be the right time to sell. Selling a Precious Metals ETF is easy, but because investors can trade throughout the day, it is hard to determine how much more value there is in the product that was invested in. Value can fluctuate quickly. 

Determine your Personal Investment Goals

Short and long-term investment opportunities exist in any Precious Metals ETF, but investment goals must be considered before buying into paper or physical products. Even though ETFs are easier for buy-ins, there may be much more value in owning physical metals.

There is a historical baseline for Precious Metals prices to track its value. There is no true baseline for an ETF because its value fluctuates as buying and selling continue throughout the day. ETFs are unpredictable products, but before a trader or investors decides on which tactic to approach, examining the historical data of price and value is in order.  

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