What's involved: Exchange-traded funds like SPDR Gold (GLD
) own vast holdings of gold bullion. Each share of SPDR Gold has a value of just under a tenth of an ounce of gold, and those shares rise and fall with the price of gold bullion.
Pros: Gold ETFs take responsibility for storage and protection of the gold in their possession, saving you the hassle and cost of owning physical gold.
Cons: Although many gold ETFs own physical gold, some gold ETFs use derivatives rather than bullion to track changing gold prices. For those ETFs, you run the risk that the derivatives involved won't move in lockstep with gold prices, potentially causing you to miss out on a gold-price increase.