SAN DIEGO (ETFguide.com) - Will gold be able to repeat its stellar 2006 performance?

While it's still too early to say, exchange-traded trusts that follow the precious metal seem to be on track for another good year.

 

The streetTRACKS Gold Shares (NYSE: GLD) which tracks the ounce price of gold has increased by 7.68 percent on a year-to-date basis. Last year it registered a solid gain of 22.55 percent.

 

The Gold Shares relieves investors from the trouble of having to buy, store, and insure physical gold. Instead, the trust's shares are backed by gold bars held in a secure vault in London.

 

Since their initial launch in late 2004, the Gold Shares have amassed an impressive asset base of just under $11 billion.

 

Another route to getting market exposure to gold is through gold stocks.

 

In contrast to gold itself, with gold stocks there's considerably more to worry about than just the directional price of the metal. What if the company misses earnings targets? Or, what happens if the company can’t find more mines to extract and produce gold? What about the trustworthiness of corporate managers? All of these questions add a lot of uncertainty to investing in gold stocks.

 

Nevertheless, a strategy to invest in gold stocks without the risk of owning single companies is through the Market Vectors Gold Miners ETF (Amex: GDX). The fund is sponsored by Van Eck Associates and tracks an index of roughly 44 mining stocks. Top holdings include Anglogold Ashanti, Barrick Gold, Goldcorp, and Newmont Mining.

 

Since the beginning of the year, the Gold Miners ETF has eeked out a small gain of 1.60 percent.

According to the prospectus, the fund has an annual expense ratio of 0.55 percent.

 

With regard to taxes, the Gold Shares are taxed as collectibles, which is subject to a higher long-term capital gain rate of 28 percent versus stocks. Under current tax law, most tax payers will pay a maximum long-term capital gain rate of either 5 or 15 percent depending on their income tax bracket.