Gold Fund

Categories: Investing, Index Funds

If we’re like King Midas and everything we touch turns to gold, we probably don’t have a lot of use for gold funds. But if we’re like the rest of the mere mortals and that turn-to-gold touchy thing isn’t an option for us, then gold funds just might be one of the best ways for us to invest in the gold market.

Gold funds are mutual funds or ETFs that are specifically devoted to the world of gold investing, whether that’s buying and selling gold itself or investing in the companies that mine it. Gold is a popular investment choice because, first of all, it’s pretty and shiny, and second of all, it tends to remain relatively stable even when the markets around it are going bonkers. (There’s a reason so many countries tied their currency to the value of gold for so long.) Maybe it shouldn’t be our primary investment strategy—diversified portfolios are a good thing—but it’s probably not the worst thing we could do with our money.

One thing to note, though: when we buy a gold ETF (“ETF stands for “exchange-traded fund,” btw), we’re not actually buying gold. We’re not even buying a gold note or certificate. We’re buying shares of gold-backed securities. The real gold exists somewhere—it’s not imaginary gold—but we don’t own it. What we do own is the ability to make or lose money as the value of gold rises or falls, and we also own the ability to trade our shares easily, quickly, and without the difficulties that would arise from actually buying and selling physical bars (or portions of bars) of gold.

Related or Semi-related Video

Finance: What is the Gold Standard?4 Views

00:00

What is the gold standard? Alright people well it's a kind

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of value number line that everyone trusts gold gold gold gold yeah like [hand draws line against ruler, fills with gold]

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that an ounce of gold in India is generally worth the same as an ounce of [map of world]

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gold in China the US Argentina even Somalia assuming it's an actually real

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gold and not fake gold or pyrite yeah yeah we know what you did [Somalian with gun in village]

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alright well because gold is so universally or planet airily trusted it [gold ingot floating in space]

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kind of comprises a monetary system unto itself [gold ingot orbiting earth]

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its economic unit is the heart of most modern economies or at least their [skeleton with golden heart]

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history and like a tub of Neapolitan ice cream it comes in three flavors species [tub of ice cream]

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bullion and exchange alright so let's start with gold species with Vichy but

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it's way better it is the standard monetary unit associated with gold coins

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well obviously in a world where gold is being exchanged for things of value like [crate of good and bag of gold ]

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mining picks Levi's jeans and food gold itself or the store of value has to be

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modularized in the standardized units and that's what gold species is all

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about alright next up the gold bullion standard alright well that's a system

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where gold coins are stored in the coffers of governments as a kind of

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collateral or guarantee against a usually paper circulating currency like

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the US government has a whole bunch of gold in Fort Knox in Kentucky there yeah [US government building]

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and they guarantee the paper value of a dollar in theory based on that gold

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reserve in Kentucky even though today it's a small tiny rounding error of all

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the paper that's out there alright well finally we have the Gold Exchange

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standard which is usually simply a government backing or guarantee of a

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fixed exchange rate for what the government will do in return for them [Uncle Sam holding cardboard sign]

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being given an ounce of gold well the real gold standard however kind

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of faded away through the 20th century as so many countries drew irresponsible [highway sign saying "now leaving Gold Standard]

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financial practices as the norm norm the quote honesty unquote of a fixed rate

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gold exchange simply put too much pressure on the desire for countries to

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have internationally weak currencies hoping to stimulate

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exports from their own hard-working citizens the big advantage here well in [Fidget Spinner boat in Atlantic ocean]

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essence the gold standard limits the power of government to make too many [Uncle Sam holding knife]

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stupid moves and the foundation of that control is that if a government's

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currency or ability to buy stuff is limited by the amount of gold they have

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in their coffers well then they have to live within their set budget and I like

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the rest of us right unlike a paper backed currency like what we have in the

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US governments then can't just run a printing press anytime they want [dollars getting printed]

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printing money out of thin air making more gold to pay for I don't know

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congressman pickpockets private shuttle from Virginia to DC or a new five [congressman getting out of taxi]

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hundred thousand dollar after-school program for kids who are addicted to [kid biting pencil in class]

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biting pencils anyway the biggest disadvantage here is that governments

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are actually then culpable for the money they spend ie their budgets that's the

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problem with a real full gold standard it forces people to act financially

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responsible yeah that would be terrible well when you look around that would not [wheel of fortune landing on Greece/Somalia]

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be such a terrible thing at all

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