There are a few downsides to these investments, however. For tax purposes, investors of this ETF are treated as though they own "collectibles," which means that any long-term gains will be taxed at a maximum 28% tax rate rather than the current 15% tax rate that applies to long-term capital gains on the sale of stocks and mutual funds.
Another negative about gold as an asset class, says Ron DeLegge, editor of ETFguide.com, is that it doesn't pay a dividend, which makes it a bad idea for income-oriented investors. "While gold has historically been used as a hedge against inflation, it's not an income-producing asset, like real estate."
"The biggest downside is probably the volatility of the asset class," says Wallace. "Gold is currently trading at around $470 per ounce -- a 17-year high -- so potential investors in either of these funds need to make sure that adding gold to their portfolios is part of a long-term investment plan, not just a bet on the flavor of the month."
Gold and the ETFs that track it may be hitting new highs, but gold devotees have a shinier perspective when it comes to the metal's price. The gold bugs point out that gold still trades well below its 1980 all-time high of $850 an ounce, and considering the nation's inflation prospects, still could rally close to it."The threat of inflation and higher interest rates have made investors revisit the idea of holding financial products linked to tangible assets, like the GLD," says DeLegge. "With the click of a button, ETFs have made it easy to have gold exposure, when in the past it wasn't so easy."