Monday, May 27, 2013

Gold Futures vs. Gold ETFs: Understanding the Differences and Opportunities

Gold Futures vs. Gold ETFs: Understanding the ... - CME GroupWinning the Trading Game and Trade Like a Pro Significant differences in the Differences in Market Liquidity It’s estimated that world gold reserves fall in the range of 120,000– liquidity, leverage and costs 140,000 metric tons. The largest gold ETF, SPDR Gold Shares ETF (GLD), is in its fifth year of existence with a total of $42 billion dollars of futures and ETFs that need under management and 1,100

metric tons of gold bullion in reserve. to be understood before any Originally founded in 2004, the SPDR ETF was specifically developed to track the price of gold and become an inexpensive alternative to investment decision is made. owning physical gold. Investors can purchase a share in the ETF which represents one tenth of an ounce of gold. It sounds great in theory, but the amount of bullion under management is fairly insignificant and the volume of gold traded by the SPDR ETF is fairly small when compared Gold has historically served as both a legitimate hedge against inflation to the daily volume transacted using COMEX Gold futures. and as an integral part of a diversified investment portfolio. But how Source: Bloomberg can individual investors participate in the resurgence of gold and use gold as a vehicle for investing, preserving and increasing one’s wealth? Currently, the SPDR Gold ETF trades an average of 24 million shares (GLD) on a daily basis representing 2.4 million ounces of gold. In Today, more than any other time in history, active investors have comparison, the average daily volume for COMEX Gold futures is available to them a variety of ways to invest in the performance of gold. over 200,000 contracts which equates to approximately 20 million From gold bars to mining stocks or derivatives, individuals have flocked ounces changing hands on a daily basis with an additional 48 million into gold-related investments in an attempt to benefit from the renewed ounces (or 1,366 metric tons) held in open positions. Over 90 percent interest in gold. Two of the more popular gold investments chosen by of these futures contracts are traded electronically. This, combined professional money managers are Gold futures (COMEX) and exchange with the large number of market participants and the significant daily traded funds (ETFs) based on gold. In many cases either the futures or volume, has the effect of making the futures markets very efficient. And ETFs are a suitable choice, but there are significant differences in the all transactions, as well as the best bids and best offers, are publicly liquidity, leverage and costs of each that need to be understood before available in real-time which further enhances liquidity and provides any investment decision is made. what is known as transparent price discovery. Transparent pricing and small bid ask spreads are key to a market’s success and a great benefit to...

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