Why SPDR Gold Trust ETF (NYSE Arca: GLD) Belongs in Your Portfolio

Gold's late-May decline to its lowest levels in four months could mean now is the time to buy shares in SPDR Gold Trust ETF (NYSE Arca: GLD). GLD, the world's largest gold-backed exchange-traded fund, is down more than 8% since mid-March to a discounted price of $120.65 a share.

That makes the ETF, whose shares have been sought by the likes of world-renowned hedge fund managers like George Soros and John Paulson, a value buy right now.

Since its inception in November 2004, the fund has gone up 169.43%, despite a 27.05% drop in 2013 - gold's worst year since 1981. Investors are especially attracted to this ETF because it allows them to "own" physical metal. GLD tracks the performance of gold bullion by holding London bars and issuing shares backed by these physical holdings.

"The analog [to GLD] is that to buy one share of GE I don't have to go to their sales guy, I press a button on my computer and I own it," World Gold Trust Services (WGTS) managing director Jason Toussaint said to Forbes.

Besides the draw of owning physical gold without hassles like storage, GLD is attractive because of the size and liquidity of its gold backing.

You see, there are currently 787.08 tonnes and more than 25.3 million ounces of gold in the trust, valued at more than $31.7 billion U.S. dollars. Not only is GLD the largest and most liquid gold-backed ETF in the world, it's also the world's second-largest exchange-traded product. Additionally, the fund is sponsored by the World Gold Council (through WGTS), whose 21 members comprise the world's leading gold mining companies.

Here's how SPDR Gold Trust ETF operates - and what it can do for your portfolio today...

How GLD Works for Your Portfolio

GLDGLD was launched as a less expensive and more efficient option for investors who don't want to buy and store physical gold. State Street Global Advisors oversees the management of GLD for an annual fee of 0.40%. Typically, around 96% of the money in GLD is invested in gold bullion.

Here's how shares of this dominant gold ETF are actually traded...

As mentioned, GLD reflects price performance of gold bullion through actual gold bars in HSBC bank's vault in London. Shares are issued based upon (and backed by) these physical holdings.

When it comes to redemption, however, investors cannot simply redeem shares for physical gold (only authorized participants can exchange shares for gold). Instead, shares are exchanged in the open market and retail investors don't actually "own" gold - they own an asset backed by gold.

GLD's 8.74% drop since mid-March provides a window of opportunity for investors looking to add this kind of fund to their portfolios to do so at a discount. The conventional thinking is that holding between 5% and 10% of overall assets in gold can provide meaningful diversification and a hedge against inflation. And Money Morning experts recommend owning $1 of gold for every $10 you have in bonds as the best way to hedge your risk in today's volatile global markets.

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