"The GLD was the right product at the right time," says Stuart Thomas, managing director at the World Gold Council. "And a big part of the reason why we signed up with State Street because of their renewed commitment to the ETF business."

Eureka!

The GLD may have been an overnight success in terms of market acceptance, but according to Gary MacDonald, director of marketing at SSgA, it was more like a four-year struggle.

"It took a lot to get this through the Securities and Exchange Commission, because this was the first product of its kind," says MacDonald.

Despite the SEC slowing down the approval process to a snail's pace, MacDonald says there was never any doubt about the product because of the huge pent-up demand from investors looking to own gold without the headaches of buying bullion and storing it.

"Investing in gold ETF shares is in many ways more convenient than investing directly in gold," says Morningstar's Wallace. "For instance, if one were to hold an actual chunk of gold bullion one might run into liquidity issues, while ETF shares are more easily traded."

Another potential positive of investing directly in gold is that the price of bullion itself tends to be less volatile than the price of gold-mining stocks, says Wallace. "Mining gold comes with very high capital expenditures, thus a lot of the profit a gold producer makes is already gone by the time the gold is extracted from the mine."

And while the advent of gold ETFs saves investors a trip to the local rare-coin dealer to buy some bullion, players in the physical gold market say the competition has not reduced their business, yet enhanced it by pumping up demand.

"Our business has significantly improved since the first ETF was introduced last year," says Mark Albarian, president and chief executive of Goldline.com, an Los Angeles-based precious metals dealer. "The GLD and IAU have brought in people to the market that have never been comfortable holding gold." Albarian attributes part of the rise in the price of gold over the past year to the demand created by the ETFs.

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