Given the recent pull back in gold prices and the evidence of its long term bull market, both the gold bugs and various other investors are asking themselves whether it’s time to purchase a gold ETF fund. Although there is no simple answer, there are questions which should be considered to aid in making a decision:
The first thing you need to identify is the reason why would want to make a purchase of a gold ETF. Should you merely desire to take advantage of rising gold prices, a gold bullion ETF is the proper vehicle for your investment. Alternatively, if you are concerned with governmental mismanagement or are worried about a world-wide financial disaster, a gold ETF is not for you and you should purchase gold coins and bars.
Another factor you need to consider is whether you are a risk taker or are risk averse. As with most commodities, the price of gold can vary greatly, both in the long term and the short term, so if you worry that the price may go down, a long gold ETF is not appropriate and you should opt for money market funds or minimum risk bonds. On the other side if you believe the gold market is going down and you’re no adverse to risk, a short gold ETF fund may be just what you’re looking for.
Finally and most importantly, you must determine your level of belief as to whether gold is in a long term bull market or not. Personally, I am of the opinion that gold is in a bull market with a couple of years to run, but this is something which every investor must decide for himself. Should you be uncertain or unable to decide the status of the gold market, then do not invest in gold.
Regardless of what you decide, you must be certain that your exposure to any specific sector of the market, including gold, is limited to twenty percent or less of your total portfolio.