How Gold ETF Works

by Gil on August 31, 2017

If you are thinking about investing in gold, there are a lot of more profitable ways that you can exploit rather than just buy solid bars of gold and keep them with you. This is what most people do normally. They just visit the market and buy unprocessed gold and keep it in its raw form.

Then, when the rates of gold increase, they quickly cash in on their purchase and earn profits from the gold that they bought earlier. However, this is a pretty time consuming process as investing in gold and then waiting for the rates to rise might take around a year or even more. So, what if there is a way by which you could earn profits more quickly than wait for years?

For such reasons, gold ETF is created. ETF, which is also known as the Exchange Traded Fund, is a great way of earning profits for those people who are interested in investing in gold.

Learning How Gold ETF Works

Understanding how gold ETF works is very simple. A conglomerate of companies joins together and buys bullion of gold together. Then, they release shares of gold in the stock exchange, making it very easy for people to purchase these shares from their local stock exchange.

Then, when the prices of gold fluctuates even the slightest bit, shareholders get to earn higher profits due to the fact that as soon as the prices increase, the companies who own the amount of gold release their dividends for the shareholders.

The companies actually purchase the gold and keep it with them in physical storage. This is how the gold ETF works. The reason why so many people like to purchase shares on the gold ETF is because of the fact that it takes a great burden off their heads.

Disadvantages of Buying Physical Gold

When purchasing gold directly, there are a lot of issues that need to be handled. The most important of these issues revolves around the logistics of purchasing gold. You need to make sure that you purchase gold that is of high quality for the price you are paying, and also to ensure that you bring it safely to the place where you wish to deposit it.

These can bring about a lot of issues for the investor, which makes it quite difficult to buy gold. Secondly, reselling the gold also causes a problem as they need to find the right buyer who would be willing to purchase the gold at the price that you would charge.

Safely overseeing the process is also a very careful task, so in order to avoid all of these issues, what most people do is just buy shares of the gold ETF and keep it with them. This is the complete background of how gold ETF works and its advantages than buying solid gold and keeping it with you.

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