Gold has always been a safe harbor in stormy times. But what protection offer stock market -traded investment funds (ETFs) on gold in times of crisis?
• Gold is considered crisis -proof
• There are a few things to consider in gold ETFs
• different alternatives possible
In phases of economic uncertainties, geopolitical tensions or growing inflation prints, investors are increasingly looking after crisis -proof assets. Gold is quite high on the list, which is traditionally considered a safe harbor.
How do gold ETFs work?
For some time now, ETFs that reproduce a base value have been enjoying growing popularity. There are now also gold ETFs: the issuer acquires gold bars with the fund assets, which are then kept by a bank. The ETFs, which are secured with physical gold, accomplish the development of the gold price (spot price) almost 1: 1 and thus offer investors the opportunity to participate in gold price development without having physical gold themselves.
Such ETFs are relatively inexpensive due to low administrative fees and they can be traded on the stock exchange continuously. Therefore, acquisition and sale work significantly more uncomplicated for investors than with physical gold. Another advantage is that ETFs are special funds. Thus, the gold population remains legally protected if the issuer of the gold ETF becomes insolvent. They are as crisis -proof as gold themselves.
Gold ETFs are not approved in Germany
It is important for investors in Germany, however, that only ETFs are approved here that rely on broad raw material baskets. ETFs that only invest in a position – as in this case physical gold – are prohibited in Germany.
The background to this ban is the European Ucits guidelines (undertakings for collective investments in transferable securities), which prescribe sufficient diversification of the systems. In Germany, however, the regulation is more common under the term OGAW guideline (organism for joint investment in securities).
Instead, investors in Germany can use gold ETCs (Exchange Traded Commodities) instead. This is permanent Bondswhich are often secured by physical gold and thus map the gold price approximately 1: 1. Gold ETCs are approved in Germany, but do not represent a special fund, which means that in the event of bankruptcy by the issuer, the risk of full loss threatens. A well-known example of a gold ETC popular among German investors is about Xetra gold.
Gold ETFs allowed in Switzerland
However, the UCITS guidelines do not apply in Switzerland. Gold ETFs, which only invest in physical gold, are and are widespread here. These ETFs are also considered a special fund in the Confederation and are therefore protected in the event of bankruptcy of the issuer.
Gold ETFs on corporate shares
ETFs could also offer a possible alternative for investors that invest in companies from the gold sector – e.g. gold mining companies or companies that finance such mining companies.
But be careful: the gold ETFs on companies in the gold industry are usually more volatile than the physically secured gold ETFs or gold ETCs. This is due to the fact that your value not only depends on gold price development, but is also influenced by regional and internal factors. This includes, for example, the political framework in the country of a mine, the company production costs or disorders during dismantling. As a result of such factors, ETFs often increase on gold companies more than the gold price, yes it can even happen that they develop in the opposite direction.
Editor finance.net