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ETF of the Week: SPDR Gold Shares (GLD)


The reasons for owning gold may be many but the result is singular investor demand for the precious metal has never been higher. And the same holds true for the SPDR Gold Shares (GLD), that now has $70 billion in assets, making it the second largest exchange traded fund in the world, and also the focus of our inaugural "ETF of the Week" segment.

According to Tom Lydon, editor of ETF Trends.com, there are typically three simple reasons why investors buy the GLD instead of purchasing physical gold coins.

"The whole idea here is instant access to gold," Lydon explains in the attached video. "It's very inexpensive, with an expense ratio that is only 0.4%, and you can buy it in the morning and sell in the afternoon, so liquidity is a huge factor here."

Structurally speaking, each share of the GLD represents 1/10th of an ounce of gold, meaning if the spot price of the metal, for example, was trading at $1,234 an ounce, the Gold Shares ETF would be trading at $123.40.

"During the day, the spot gold price moves up and down, and the price of the gold ETF actually moves in unison with the price of gold," Lydon says, calling the synchronicity of the price moves "spot on." And that's no coincidence since the Gold Shares are backed by approximately 1,300 tons of gold bars held in a vault in London.

Lydon explains that "the whole landscape has changed" in terms of who buys gold nowadays and why.

"More investors see it as a foundation investment," he says, partly because they aren't as excited about the prospects for the market and they're looking for non-correlating assets.

While many individual investors prefer owning something they can actually touch, the simplicity and effectiveness of the GLD outweighs that one drawback for most gold bugs and easily accounts for the SPDR Gold Shares' enormous popularity.