How to invest in gold with the ETF ?

To invest in gold, you have several solutions: physical or paper. Gold ETFs are part of the solutions that combine simplicity of holding and financial valuation. We'll give you an update here.

Definition of an ETF

Exchange Traded Funds, also called “trackers”, allow you to invest in the stock market through an index fund. In other words, the ETF reproduces the price of a stock or a quote. However, unlike traditional stock market investments, ETFs are issued by companies, which guarantee a permanently quoted market. You can therefore buy and sell your ETFs whenever you want.

Companies that issue ETFs have the choice between physical or synthetic replication of the indices. Physical replication guarantees possession of the securities by the issuing company, in part or in full. Conversely, synthetic replication faithfully reproduces the indicated price (the CAC 40 for example), thanks to investment in other financial products, which have the same performance as the prices followed.

ETFs can imitate stocks, bank prices, or position themselves in certain sectors (wood, technology, precious metals, etc.).

How to invest in ETFs ?

The purchase of ETFs is an investment that must be considered over the long term, in the same way as the stock market. Indeed, the profitability of this type of investment is appreciated over time. To purchase a tracker, you can contact companies that issue ETFs, or hold them via savings solutions. Securities accounts, PEAs and even certain life insurance policies are opening up to ETFs.

Investing through ETFs can be done via a single payment, or gradually. In the first case, it is advisable to find out about the state of the market, so as not to buy too high. Scheduled and progressive investment pools risks, and allows you to build an ETF portfolio. Thus, you have the possibility of buying ETFs backed by companies, or by commodities, such as gold. The gold ETF (or ETC) follows the price of the ounce of gold, and you then benefit from the safe haven of gold in the event of a crisis.

Exchange Traded Commodities reproduce the share prices of gold mining companies and the price of an ounce of gold. But what differences are there between these two investment solutions ? This is what we will see now.

ETFs backed by gold mining companies

Gold mining and sales companies can be listed on stock exchanges. So, you have the option of buying shares, or using a tracker to replicate the company's price. Price variations directly depend on the financial health of the company, and therefore on the price of an ounce of gold (around 1,800 euros). However, company management remains an important lever for the profitability of your ETF.

The following trackers replicate stock prices:

• iShares Gold Producers;
• Lyxor NYSE ;
• iShares MSCI;
• VanEck Vectors.

Trackers backed by the gold price

If you want to invest directly in the price of gold, you can then opt for ETCs with futures contracts. Gold ETFs scrupulously follow variations in the price of an ounce of gold.

You can then trade on the rise in gold prices, but also on the fall. In this case, we speak of an inverse ETF. Thus, when financial crises end, investors transfer their assets to investment products that are less secure than gold, which de facto causes the price of gold to fall. This is an opportunity to bet on the price falling.

The main ETCs are as follows:

• Amundi PHYSICAL ;
• WisdomTree: inverse ETF;
• iShares Physical;
• Leverage Shares Goldman Sachs ETP Securities.

Holding physical gold generates numerous additional costs (storage costs, insurance, etc.). Investing in gold ETFs therefore represents a way to indirectly acquire gold, while benefiting from the flexibility of stock portfolios.

First of all, you do not need to plan a specific storage location to buy paper gold. In fact, all you need is a wallet or a dedicated account to acquire and grow your investment. You therefore save on security fees, insurance and transport.

On the other hand, the fees linked to the purchase and management of your assets and your ETFs are low (around 0.3%). You can buy and sell your ETFs easily, unlike physical gold. To do this, simply give an order to your asset manager. Furthermore, purchase and sale times are zero, and do not depend on the opening of world stock markets.

Finally, the last advantage lies in the plurality of ETFS. Corporate stocks or gold prices, it's up to you to determine the risks to take to develop your wealth. You also have every interest in diversifying your purchases, in order to make the most of the financial potential of gold.

Investments in gold ETFs have many qualities (liquidity, etc.). However, purchasing gold via ETF involves risks that it is necessary to be aware of, to avoid losses and guarantee your capital over the long term.  

Speculation

Investing in gold via ETFs allows you to diversify your assets, while preserving your assets in times of crisis. However, unlike physical gold, you do not actually own gold when you purchase an ETF. In fact, purchasing an ETF corresponds to holding an index which offers the possibility of speculating on a specific price. To guarantee the value of ETFs, issuing companies purchase physical gold which they hold (1 unit purchased is equivalent to 1 gram of physical gold). However, not all companies fully own the physical value, especially in the case of synthetic replications. In fact, if the company were to disappear, you could suffer heavy capital losses. 

The risk of capital loss

On the other hand, leveraged trackers can make you money a lot, and quickly. However, prices can reverse, and profits can be reduced to nothing.

Finally, purchasing gold trackers does not necessarily require calling on a financial professional. Indeed, many trading platforms offer ETFs. However, the intervention of an expert in the field is preferable, so as not to make the wrong choices and lose your money.

The price of gold is a key element in evaluating the performance of ETFs. It plays a key role in the value of shares of gold companies, but also in the variations of ETFs backed by gold. We'll tell you more here!

How is the price of gold defined ?

Gold ETFs are therefore directly correlated to the price of gold. So, to know the best ETFs, you must first look at the gold quotation. The latter takes place twice a day at the London Bullion Market Association. It varies and depends on supply and demand. Thus, industries, central banks and individual investors influence the price of gold. The geopolitical situation also enters into the price calculation. In the event of a financial or monetary crisis or armed conflicts, investors favor gold. The gold metal is considered a safe haven, meaning that its price is stable over time. This is why the price of gold rose at the start of the Covid-19 pandemic and the war in Ukraine. Gold therefore appreciates over time and continuity.

The best gold trackers

ETFs are based on the spot price of gold, and therefore experience the same fluctuations. We can therefore name the following ETFs as having had the best returns in recent years. However, past performance is no guarantee of future performance:

• iShares Physical: increase of 10.69% in one year;
• WisdomTree Core Physical: increase of 10.62% in one year;
• Xtrackers Physical (EUR): gain of 10.45% in one year;
• Invesco Physical Gold: + 3% in 6 months.

Some trackers are backed by mining, gold sales or processing companies, others follow the price of gold. The choice between the two parties depends on your investment strategy, your objectives, and your risk appetite.

You wish to make a gold purchase or sell your gold items ? Make an appointment at one of our Gold Union agencies. Our advisors will show you the different gold investment products. Gold coins, ligold ngots or gold ingots, the range offered by Gold Union is varied, and suitable for all budgets.