Should I Buy Gold ETFs or Gold Coins?
The extraordinary expansion of gold ETFs (Exchange Traded Funds) in the gold market has prompted the question 'Are gold ETFs taking over the gold money market?' It has even been said that the increased purchasing of gold ETF funds has partially driven the current bull market.
The buy in and sell out cost on gold EFTs is smaller than on purchasing actual bullion. With bullion you have the dealer mark ups on the buy and a reduced below actual gold cost per ounce on the sell. Bullion is somewhat of a longer term market, but with gold being a bull market currently, the concept of being able to buy gold and even sell it for a nominal broker's fee seems very attractive for the small investor.
What is often overlooked is that gold ETFs are considered an investment activity and therefore subject, in many countries, to a capital gains tax or income tax. Accumulating or buying and selling gold coins however are usually not looked at in the same capacity - as they are actual legal currency.
There are some exceptions however in some US states. So, in all situations when it comes to any investment, including the buying or selling of gold in any form, and potential tax considerations, one should always consult with one's own accountant.
One danger in ETFs is the fact you cannot take delivery of solid gold if you cash or trade in your ETFs. You will only be paid in cash. This is troublesome under certain scenarios. There is a vast difference between owning actual gold and owning a certificate or piece of paper that says you own shares in a gold pool.
If gold is not in your possession it is subject to certain influences in the market, such as governmental and bank regulation, in whatever country it is deposited.
It is probably too soon to say if ETFs have found their level playing field. Hard gold bullion coins and bars are still a favorite of die-hard gold investors, especially for the long term investment strategies. Eventually a balance will be found as those that want to 'play' investment will be satiated and the gold 'nuggets' of the industry will still be around buying and selling actual gold coins and bars.
So in the world of gold EFTs vs Gold Coins, it is unlikely that gold ETFs are taking over the gold money market - they seem to just be providing a lazy way for investors to jump on the gold band wagon.