Yes, this is an interesting one.
In the beginning, I didn't know that they could be traded on the stock markets.
If we are buying an ETF for gold, we are investing in the companies included in the ETF. If you have the ETF XGD, for example, you get the benefit of investing in Barrick Gold, Gold Corp, Kinross, Royal Gold etc.
Now a days, whatever index we can think of, there is an ETF for that.
ETF can be considered as a mutual find with less expense for the investor. That is my understanding.