Before I launch into a discussion of the gold ETF climate, I want to mention something.

Yesterday, I wrote a blog post explaining what ETFs are, some of their advantages and why their an increasingly popular investment vehicle.  Now, I’d never accuse The New York Times of taking its cues from David Lampsen or Personal Finance Analyst, but the paper is running a very similar AP look at exchange traded funds in today’s issue.  Obviously, ETFs are a hot topic.  All kidding aside, it’s another nice introduction to exchange traded funds that you might want to read

And, as you probably know, gold is a hot investment.  Let’s put the chocolate and the peanut butter together, shall we?  Here’s a quick overview of the gold ETF situation

What is a Gold ETF?

A gold ETF is an exchange traded fund that holds real gold bullion.  Bullion Vault explains:

Gold ETFs : You are buying a quoted, gold denominated, debt security which is the obligation of a trust created for the specific purpose of enabling gold investment through it. The trust deed requires the gold denominated debt of the trust to be backed by gold assets which the trust must own – although possibly in various forms.

As the aforementioned New York Times article mentions, EFTs are attractive to all investors, but especially to thos who are looking for a way to lower their taxes and the sharpshooters who aren’t afraid to buy and sell all day.

Gold is Hot

They’re not mining as much gold as they used to, and we all know what restricted supply means–increased prices.  The struggles of certain elements within the mining community and the fact that all of the easy-to-find gold has already been extricated from the earth is just one reason why gold continues grown in value at what Forbes calls “a feverish pitch.”

The Wall Street Journal recounts a World Gold Council report marveling at the precious metal’s 4th quarter growth that states, “The report said an important part of this demand is long-term in nature, likely driven by positive sentiment toward gold’s supply and demand fundamentals and the corresponding price outlook.”

If you’ve been watching gold at all over the last two years, you know that it’s been one of the market’s few strong performers.  People love a tangible, proven commodity when things get tough, after all.  And times are tough.

Proof of Pessimism?

Much of gold’s growth in value is due to pessimism about the overall quality of the economy.  In a way, buying gold is saying that you don’t think things are going to get appreciably better.

You can see evidence of that virtually everywhere.  When unemployment numbers turned out to be less than anticipated recently, gold and gold ETFs instantly tumbled.  When the dollar looks weak, people stock up on gold.  Watch Fox News (if you dare) or listen to right wing-dominated talk radio.  You’re sure to here adds by those advocating gold investment on the basis of the struggling economy.

If you don’t think we’re on the brink of a turnaround, this might still be a good time to buy into a gold ETF.

It’s true that gold has dropped a bit recently, but it’s still in $1,000+ per ounce range, which represents a huge qunatity of growth over the last few years.  If you’re not convinced that jobs are coming and that foreclosures are a flash in the pan, a gold ETF may be just what you want to add to your portfolio.