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How do I Choose the Best Gold Index Fund?

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  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 06 September 2016
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Roughly one-fifth of the world's stock of gold - worth over $200 billion USD - is stored under the streets of London.  more...

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Investors who want to choose the best gold index fund for their portfolio should consider technical aspects of one of these exchange traded funds, as well as how a specific gold index fund can work with a particular investment strategy or philosophy. There are many different kinds of gold index funds out there for individuals who want to trade in this popular heavy metal in a more sophisticated way. To find the best ones for you, look carefully at the prospectus, and match what’s involved in the index fund with what you want to do to diversify your portfolio.

The best gold index fund options are generally “no-load” funds that don’t hit investors with redemption fees or other costs when it’s time to sell. Look for low annual fees for an index fund around gold, and understand any fees or commissions, as well as tax liabilities, that will come out of your total gain or yield.

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Another thing investors should think about with a gold index fund is how it relates to their short or long-term goals. Some like to participate in a “buy and hold” strategy where going long on gold yields eventual results when speculators or others bid up the price of gold fund, but others can effectively “short” gold using complex gold ETFs that offer a kind of inverse position to those “cheerleader” funds that expect gold to go through the roof at any given time. Pick the gold index fund that matches your hunch on gold.

For those who are considering gold index funds, such as gold ETFs, it’s also important to look at what’s actually involved in the fund. Since these funds, as index funds, will involve various equities, look at whether any of the involved equities include a “numismatic” gold value as opposed to a “raw gold value.” The numismatic value of gold relates to specifically minted coins and other collectibles, where a raw gold fund focuses only on the value of the gold commodity in general. Investors may also want to evaluate whether parts of the index fund include gold mining operations, which may be particularly poised for gains, or just a “warehouse” gold strategy.

When you have an idea of the gold index funds you want, look to see if your specific online brokerage will provide you with access. Many of the most popular gold funds are accessible through the major financial brokerage firms, but check to make sure you can access the ones that will help you diversify. Also look at tracking ability, for example, capacity for intra-day trading and use of stop losses or other tools to effectively manage your gold investment.

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