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TheStreet Open House

Don Dion's Weekly ETF Blog Wrap

Stocks in this article: GLD

NEW YORK ( TheStreet) -- Don Dion posts his current insights on the stock, bond, commodity and currency markets in his RealMoney blog, anticipating which ETFs will be in play next.

Here are three of his blogs from the past week.

Get Your Hands on Some Gold
Published 6/9/2010 10:07 AM EDT

When it comes to gold ETFs, investors want more than just exposure: They want to be able to hold the physical gold in their hands. Intense demand for the relatively new Sprott Physical Gold Trust ETV (PHYS) has pushed the fund to a more than an 11% premium.

I was skeptical about PHYS when it launched back in February. PHYS seemed at first like a gold fund for the paranoid. Unlike existing physically backed gold funds, like the massive SPDR Gold Shares (GLD), iShares Comex Gold (IAU) and the newer ETFS Swiss Gold (SGOL), investors in PHYS can request actual delivery of gold bullion (in exchange for shares) in an armored truck.

Investors in physically backed gold funds like GLD, IAU and SGOL have exposure to the value of a stockpile of gold held for the trust. The funds' values reflect the value of the physical gold they hold. As all three funds are large and liquid, investors can buy and sell shares at prices that are very close to the funds' underlying value (or NAV).

As PHYS has the option of physical delivery, however, investors seem more than willing to pay a premium to know that they can take delivery of the actual metal. Provided the amount of PHYS you own is enough to cover at least one so-called London Good Delivery Bar, which generally weighs around 400 troy ounces, you can request delivery each month before the 15th. PHYS' premium reached 20% in May as concerns about Europe's currency intensified.

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It's important for investors to remember that PHYS's closed-end format means that premiums (or discounts) aren't unusual when it comes to pricing. The advantage of funds like GLD, IAU and SGOL is that they closely track their underlying value.

Is the advantage of physical delivery enough to make PHYS worth the premium? For some investors, maybe. The minimum investment -- currently over $1,200 -- you have to make in order to qualify for physical delivery might be pricey for some.

If you want to be able to hold your gold investment in your hands, I'd recommend that you invest in gold bars or coins directly. That way, you don't have to worry about premiums, or hiring a armored truck to deliver your investment from Canada, where the assets are stored at the Royal Canadian Mint. If you just want exposure to the price of physical gold, however, GLD, IAU and SGOL are solid investments.

At the time of publication, Dion Money Management was long IAU.

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