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Five Things to Know about Investing in a Gold ETC

Five Things to Know about Investing in a Gold ETC.

Exchange-traded gold ETCs have revolutionized the way investors can own this precious metal, but not all are built alike. Here’s 5 things investors should know before making an allocation. As always, when you invest in gold ETCs, your capital is at risk.

1.       Physical Gold ETCs: It’s important to check if the gold ETC you are considering actually owns the metal. Some use a ‘swap’ to provide the performance of gold without actually holding it. Gold ETC providers should publish a list of the bars they own on their website, giving investors confidence that their money is backed up by a real asset, not the credit rating of a bank.

2.       Responsible Gold ETCs: The two major gold industry trade bodies, The World Gold Council and The London Bullion Markets Association, both have guidelines that ensure that gold is sourced and used in a responsible and sustainable way – for example how the gold was extracted, who profited, the treatment of miners and supply chain labourers and whether there is a risk that the gold has been used for money laundering, terrorist financing or supporting war.

Gold bullion bars that were produced after 2012 normally meet these responsible sourcing standards, but many older physical gold ETCs will hold bars that don’t meet these requirements. A gold ETC issuer should be able to use the unique serial number on each gold bar to identify if their inventory is up-to-scratch from an ESG perspective.

The Royal Mint Physical Gold ETC (RMAU) is currently the only gold ETC that provides 100% coverage of responsibly sourced bars. RMAU provides a full list of bars it holds on the HANetf website, which includes everything you need to identify the bar and its provenance. The bars are also audited regularly by a third-party firm.

3.       An illusion of choice: There are a lot of different providers of gold ETCs, but it may come as a surprise to know that they almost all use the same two banks to actually store the gold! In fact, more than 2/3 of all gold held in ETCs worldwide is stored in the vaults of either JP Morgan or HSBC in London[1].  

It’s important for investors to check who is responsible for the custody of the gold in their ETC, or they might find they have a lot of eggs in one basket, undermining the principles of safety and diversification that motivate many to invest in gold in the first place.

As an alternative, The Royal Mint Physical Gold ETC (RMAU) is one of the only gold ETCs to store gold both outside of London and outside of the commercial banking system – RMAU holds its gold in the purpose-built vault of The Royal Mint on the outskirts of Cardiff in Wales- the only ETC with access to this world-class storage facility.

4.       Size Matters: When you buy a share of a gold ETC, you are buying a certain amount of gold- normally this is 1/10th of a Troy ounce. For some investors, this is fine, but smaller investors may not be able to buy that much, or they may need a more precise tool to fine tune their allocations. In contrast, a share of RMAU is equivalent to 1/100th of a Troy ounce, making it far more accessible for smaller investors, or those who want to top up their exposure incrementally.

5.       Can I Touch the Gold? For many investors’ ownership of the actual physical metal is important. You might imagine that owning gold via an ETC entitles you to actually have a shiny piece of gold, sadly this is often not the case. Often, when you come to sell or redeem the gold ETC you can only get cash or have the gold sent to a pre-approved bank vault- you never get to see it or touch it.

RMAU lets investors take physical delivery (ownership) of gold as bars or, uniquely to RMAU, bullion coins. The Royal Mint will ship the bullion to an investors home, or any other location, or store the gold securely in the investor’s name. This is physical gold investing in its most tangible sense.

For more information on RMAU, please visit the The Royal Mint Physical Gold ETC fund page.

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