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Since its original listing on the New York Stock Exchange in 2004, SPDR Gold Trust exchange-traded fund has changed the game of investing in gold. The trust has enabled stock traders and investors to access the gold market without having to buy the expensive precious metal. Ironically, many investors are lured in primarily because of their desire to own gold bars. A common notion is one owns gold bars when they invest in GLD ETF. So, which is which? Investors contemplating on putting their money on SPDR GLD must first understand what it is and how it works.
The SPDR (Standard and Poor’s Depositary Receipts) trademark, one of the world’s largest exchange-traded fund, manages the GLD stock, which is a continuously offered investment trust, and maintains its reputation by being the largest physically backed gold exchange- traded- fund on earth. The World Gold Council, via the World Gold Trust Services, sponsors the trust, which issues shares backed by their holdings of the precious metal. However, only a select few are authorized to redeem their shares in physical gold bars. Those who deal in blocks of 100,000 shares are able to do this. It takes agreements between the sponsor and trustee to authorize such individuals. A regular shareholder does not have the benefit of redeeming physical gold bars; rather, he or she owns an asset backed by gold.
Still a paper asset, its top holders include Paulson & Co., owned by billionaire John Paulson, with 3.85% of total GLD shares. This is followed by Citigroup Inc (2.59%) and Susquehanna International Group, LLP (2.26%). Allianz Global Investors of America LB trails the list with 2.10%, followed by Royal Bank of Canada (1.95%) and Bank of America (1.57%). SPDR GLD shares are easily accessible and listed in a number of exchanges, including the US, Mexico, Singapore, Japan and Hong Kong.
Gold as an asset class moves in a distinct manner. Despite equity selling in the face of geopolitical mayhem, the price of gold continues to rise, and is making a comeback this year. What it comes down to, the price of gold is non-related to the price of mainstream financial assets. In 2014 alone, halfway down the year close to the third quarter, GLD price has risen by 7.7%.
There are various ways to invest in the gold market. This is achieved by acquiring gold coins, gold bars or gold bullions, as well as gold accounts, accumulation plans, certificates and gold oriented products. However, one of the easiest to access is an exchange-trade-fund such as SPDR GLD. Many investors diversify their portfolios by including a percentage of their lots in gold due to its less volatile nature. This is because of the stable quality that gold as a commodity offers. Another quality of physical gold is its liquidity, and ability to be always in market form due to its indestructible quality.
The initial pricing is based on the price of 1/10th of an ounce of gold, and the minimum order is 1 share. Analysts from Oracle Investment Research gives a “strong” buy rating (As of April 17, 2013), its year to date return at 10.27%. Looking at its 5-year trend, GLD price is relatively low as the current GLD stock quote is at 126.13, compared to its highest in 2011 at 183.23.
Its gradual decline from the last quarter of 2012 saw the price go down to one of its lowest at 115.94 in the final quarter of 2013. In 2014, stock prices have shown to be on a steady increase that could potentially be a sign of recovery from the low trenches. The relatively low price and room for large growth potential within the next decade is something to make the most out of, if one has the time and the right amount of money.
Some analysts may beg to differ, putting emphasis on the short-term benefits of investing in GLD stocks, primarily to protect against fluctuations in the geopolitical atmosphere. For them, there are many other alternatives that could offer better gains than gold ETFs. However, in principle, investing in precious metals is more of a method for diversification. Whether it is physical gold or ETFs, gold price is less volatile than major stock market indices and can offset other possibly volatile investments.
To enhance risk-adjusted returns, research has shown that a 1-2% allocation in a low risk portfolio is recommended, while a balanced risk portfolio may benefit from a 2-4% allocation. As investors, always be guided by an even balance of risk and greed. There is no one all-knowing in the world of stocks. When building one’s own wealth, it is important to combine several investment vehicles such as businesses, real estate, including paper assets and others so that one’s passive income exceeds living expenses.
“Older” potential investors who are looking to build their retirement plans on investing in paper assets and gold markets may have to look for other means to meet stronger gains. Passive investments such as precious metals may favor those who have time on their side, and may still benefit from its long-term benefits. The beauty of investing in gold and gold ETFs lies in delayed gratification, where the investors may reap the benefits after longer periods of time, if they are able to commit to the investment with realistic expectations. If one has found the balance between realistic expectations and the right amount of money into his or her investments, GLD may represent a strong block in one’s investment portfolio.
Investors age 45 and older should strongly consider adding physical precious metals to their portfolio though the use of a self-directed IRA to avoid the risks of paper assets, such as the stock market crash.