The Truth About Gold and Silver ETFs

There is almost no reason to own these things. Get real physical gold or silver, or an "off Wall Street" service like Goldmoney.com.

Because you own shares and not the physical metal, precious metal ETFs may be sold short, so two people can own the same "gold" -- the original owner and the investor who is borrowing the shares. Although baskets of shares are allocated to specific gold bars, which can be found in the ETF's prospectus, an investor must share ownership. Owning a precious metal ETF can also be more expensive than owning and storing the physical metal.

Expense ratios can range from 0.25% to 0.50%, while storage fees at GoldMoney.com, according to founder James Turk, cost 0.15% to 0.18%.

Profits made on investments in physically backed ETFs are also taxed like collectables, at around 28%. Basically an investor gets taxed as if he owned bullion, when in reality he just owns paper.