Investors buy shares in the fund, whose value rises and falls with the underlying price of gold or the value of the company's shares. Gold is considered a safe investment because its price tends to rise as stock markets fall. Bullion ETFs are a good idea, but risks are a very real and current danger. Worse, the reason you own gold is to protect yourself from financial and economic uncertainty, and you could lose that advantage if you own a form of gold on paper that involves all kinds of counterparty risks.
While gold may have its place in portfolios, here's why gold ETFs may not be the best option for you. Imagine logging into your account and seeing the price of gold go up but the price of your gold fund goes down. On March 4, BlackRock, the sponsor of the iShares Gold Trust (IAU) gold ETF, announced that it had temporarily suspended the issuance of new shares in the fund. Gold ETFs allow you to invest in gold without having to worry about the logistics of transporting and storing it.
This means that it may be cheaper to have physical gold stored in a private vault compared to the fees of owning a gold ETF. iShares Comex Gold Trust (0.12% of IAU) and SPDR Gold Trust (GLD 0.09%) are two popular gold ETFs with expense ratios of 0.25% and 0.40%, respectively. The custodian can make the gold available for collection at his office or at the office of a sub-custodian if one is used to store the gold.