Gold ETFs are treated as non-equity assets and, therefore, their short-term definition will be 3 years instead of 1 year. The value of the shares fluctuates according to the price of gold held by the Trust. Fluctuations in the price of gold could significantly adversely affect investment in stocks. Investors should be warned that there is no guarantee that gold will maintain its long-term value in the future.
The lack of an active trading market for stocks may result in investment losses at the time the shares are disposed of. Since the Trust only invests in gold, an investment in the Trust can be more volatile than an investment in a more diversified portfolio. Substantial sales of gold by central banks, government agencies and multilateral institutions could adversely affect investment in equities. In addition, if the speculative community adopted a negative view of gold, this could cause global gold prices to fall, which would have a negative impact on the stock price.
Since the shares are intended to reflect the price of gold held by the Trust's depositary on behalf of the Trust, the market price of the shares is subject to fluctuations similar to those affecting gold prices. While gold may have its place in portfolios, here's why gold ETFs may not be the best option for you. Gold exchange-traded funds (ETFs) are an excellent investment option if you find it inconvenient to buy gold at physical prices or if you want to diversify your portfolio. The amount of gold represented by the shares will decrease over the life of the Trust due to the sales of gold needed to pay the sponsor's fees and trust expenses.
Gold ETFs allow you to invest in gold without having to worry about the logistics of transporting and storing it. iShares Comex Gold Trust (0.94% of IAU) and SPDR Gold Trust (GLD 0.93%) are two popular gold ETFs with expense ratios of 0.25% and 0.40%, respectively.