The Basics of SPDR Gold Trust

Worldwide Invest Better Day 9/25/2012
Worldwide Invest Better Day 9/25/2012

The Motley Fool has helped ordinary people become better investors for nearly two decades. This month, we're reaching out to millions of investors to help guide them in their quest toward financial knowledge and independence.

Along those lines, I'm planning to take a look at many of the most popular exchange-traded funds in the market today. ETFs have skyrocketed in popularity, but it's important to understand exactly what you're getting when you buy an ETF. Today, I'd like to focus on the SPDR Gold Trust (NYS: GLD) , an ETF that has been a major contributor to the decade-long bull market in gold.

Why buy SPDR Gold?
Historically, the first exchange-traded funds only owned stocks. But as ETFs got more popular, they spread to cover other asset classes. SPDR Gold's success came in large part due to very good timing, as the ETF first came to market in late 2004 after gold had already posted strong gains but early on in what would become a much longer bull market for the precious metal.

Now, the ETF owns 41.6 million ounces of gold, or almost 1,300 tons of the precious metal. Its current value is almost $72 billion, making SPDR Gold one of the largest ETFs on the market.

SPDR Gold follows a simple concept: When it first came out, each share was backed by a tenth of an ounce of gold bullion. Over time, expenses have eroded part of its holdings, but even now, each ETF share still represents about 97% of that original tenth of an ounce.

As simple as that sounds, the ETF was quite revolutionary when it first came out. Before then, investing in gold meant either paying costly commissions to coin dealers or getting a futures account that required huge investments and high levels of risk. Stock investors tended to invest in mining companies instead. But with Barrick Gold (NYS: ABX) , Newmont Mining (NYS: NEM) , and AngloGold Ashanti (NYS: AU) among the many gold producers that hedged their production forward for years, investors in mining stocks didn't always reap the benefits when bullion prices rose. As the first true bullion ETF, SPDR Gold put a stop to that disconnect and let investors get true gold exposure.

SPDR Gold comes with costs, though. You'll pay annual expenses of around $40 for every $10,000 you invest, more than the other ETFs we've looked at. The competing iShares Gold ETF (NYS: IAU) charges just $25 per $10,000, but it's a smaller ETF with only about 5% the average dollar-volume of SPDR Gold.

Learn more
SPDR Gold Trust is the largest gold ETF and will likely continue to remain so. To learn more about SPDR Gold, use this link to the ETF's main information page, and be sure to follow the Fool's coverage on the ETF using our My Watchlist feature.

Please stay tuned throughout the month for other informative articles covering a wide range of important topics. Let me also encourage you to take a look at the special website we've set up at On Sept. 25, we're taking a day to celebrate the art of investing, and we encourage your participation. Take a look at the site now and get on the path to personal prosperity.

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Fool contributor Dan Caplinger likes things that are shiny. He doesn't own shares of SPDR Gold Trust or the other companies mentioned in this article, although he does own some gold coins. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy likes giving you the basics.

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