Five Things to Know Before You Buy a Gold ETF

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"Don't place all your bets on gold. . .3%5% if you want it for a hedge."

Ongoing concerns about the direction of both the U.S. and global economies has once again thrust gold ETFs into the spotlight. But before you take on this popular safe-haven tool, there are five things you should know.
  1. It has never been easier to invest in gold: The ease and liquidity of ETFs have really opened up commodities in general as a new asset class for investors. ETFs have made commodities like gold accessible to all investors, big and small. In the past, for investors to buy gold, they either had to buy coins or bullion. ETFs have expanded those options to include bullion, futures and equities.

  2. Gold can diversify: Gold often moves differently than the broader markets, which can help offset losses in stocks during sell-offs. Gold can also limit the volatility in your portfolio because it's a non-correlating asset.

  3. Gold as a reserve currency: The market's behavior is partly due to worries that debt problems in some European countries like Greece could spread to other parts of the European Union and damage the euro. The dollar has rallied in response, but the United States has debt problems of its own. Gold is a standby, and tends to hold its value even as other currencies lose it.

  4. It has been a good, long run: Some investors who are new to commodities may not know what they're getting into. Gold reached new highs last week, and may be reaching its peak price, so buyer beware.

  5. Gold can be volatile: Gold can provide diversification, but investors should be aware of the risks of investing in commodities. Don't place all of your bets on gold, maybe just 3%5% if you want it for a hedge. Gold can be a volatile and valuable asset at the same time.

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