Gold ETCs (Exchange Traded Commodities)
Investing With Gold. ETCs are similar to certificates, but they also have similarities with ETFs, the exchange-traded index funds.
ETCs (Exchange Traded Commodities, translated: exchange-traded commodities) are debt securities and are intended to track the performance of commodities as precisely as possible. Legally, they are bonds. ETCs are thus similar to certificates. They share other characteristics with ETFs, the exchange-traded index funds: ETCs are fundamentally indefinite and can be traded on the exchange as you wish.
ETCs are secured in various ways. However, this does not necessarily protect you as an investor from the issuer risk. The well-known gold ETC Xetra-Gold, for example, is 95 per cent secured with physically deposited gold and a further 5 per cent with gold delivery claims. There is still no one hundred per cent security in the event of the issuer’s insolvency. The shares would then be treated in the same way as claims of other possible creditors. So you would be one believer among others with no guarantee that you will see the money you reinvested.
Investing money with the help of ETCs is complicated because not all products reflect the actual gold price. Instead, many ETCs invest in gold futures, which are commodity futures. So they will ultimately depend on contracts for the supply of gold in the future. In good time before the delivery date, however, they sell the contracts and buy a new future. In this way, the companies avoid the problem of actually having to store gold.
However, the prices for futures contracts may differ from the actual gold price. Also, the cost of gold can go up while the price of a gold futures contract goes down.
Creating using ETCs can, therefore be very confusing. To make matters worse, the term ETC is not used consistently. Thus, the following also applies here: If you have not understood how the products work, what risks they entail and how their prices come about, you should not buy them. Exchange fees are incurred when buying and selling ETCs. There are also ongoing administrative costs.
The so-called gold funds must be clearly distinguished from gold equity funds. You are by no means exclusively investing in gold.
One does not invest – as one might initially assume – in shares of gold mines. Based purely on the term, one could initially assume that only gold is bought with the fund assets. But that is not the case either, as the gold funds approved for sale in Germany are only allowed to purchase gold directly to a certain extent. The rest of the fund’s assets are allocated to other forms of investment – for example, certificates or bonds. Some fund providers even forego investing in the raw material gold entirely and instead buy other investment products from the fund’s assets.
The fund should map the gold price so that investors should also benefit from rising prices. However, you have no guarantee that the fund manager’s requirements will work. The goal of mapping the gold price can also be missed. There is also the risk that the gold price itself will develop negatively.
The term gold fund is often used by providers and the press for gold stock funds. Investors should, therefore clarify precisely how their money is invested and how the respective investment product works. Gold funds are also managed funds that entail corresponding costs. High front-end loads and management fees are always a problem because they reduce returns.