Gold exchange-traded fund

Gold

History

The idea of a gold ETF was first officially conceptualised by Benchmark Asset Management Company in India when they filed a proposal with the SEBI in May 2002. However it did not receive regulatory approval and was only launched later in March 2007. The first gold exchange-traded fund actually launched was in March 2003 on the Australian Stock Exchange under Gold Bullion Securities (ticker symbol "GOLD"). Gold Bullion Securities (GBS) are fully backed by gold which is both deposited and insured. GBS was launched to give financial institutions and private investors the ability to own gold and gain exposure to the price, without the inconvenience of storing physical bars.

Fees

Typically a commission of 0.4% is charged for trading in gold ETFs and an annual storage fee is charged. The annual expenses of the fund such as storage, insurance, and management fees are charged by selling a small amount of gold represented by each certificate, so the amount of gold in each certificate will gradually decline over time. In some countries, gold ETFs represent a way to avoid the sales tax or the VAT which would apply to physical gold coins and bars.

Funds

Exchange Traded Gold

Following the launch of Gold Bullion Securities on 28 March 2003 in Australia, a number of associated GETFs were soon launched on other stock exchanges. These GETFs are grouped under the name Exchange Traded Gold.^[1]

Exchange Traded Gold is listed under:

• Gold Bullion Securities (ASX: GOLD)
• Lyxor Gold Bullion Securities (LSE: GBS and Euronext: GBS)
• streetTRACKS Gold Shares (NYSE: GLD)
• New Gold Issuer (JSE: GLD)

Exchange Traded Gold is sponsored by the World Gold Council, and as of August 2007 held 627.92 tonnes of gold in storage.^[1] streetTRACKS Gold Shares marketed by State Street Global Markets LLC, an affiliate of State Street Global Advisors, accounts for over 80 percent of this gold. As of 2007, streetTRACKS was the largest and most liquid GETF on the market.

iShares COMEX Gold Trust

The iShares COMEX Gold Trust was launched by iShares on 21 January 2005 and is listed on the New York Stock Exchange (NYSE: IAU). As of November 21, 2007 the fund held 54.14 tonnes of gold in storage.^[2]

ZKB Gold ETF

The ZKB Gold ETF was launched on 15 March 2006 by Zürcher Kantonalbank and is listed in Switzerland under the symbol ZGLD. Shares are sold in 1 kg gold units, with a minimum purchase of one unit. As of August 2007, ZKB Gold ETF held 22.0 tonnes of gold in storage.

Central Fund of Canada

The Central Fund of Canada (TSX: CEF.A and NYSE: CEF) is a closed-end fund headquartered in Calgary, Alberta, Canada, mandated to keep the bulk of their net assets in a mixture of gold and silver with a small percentage of cash. The custodian of the gold and silver assets is the main Calgary branch of CIBC. As of March 2008, the Central Fund of Canada held 28.48 tonnes of gold and 1423.66 tonnes of silver in storage.

Central Gold Trust

The Central Gold Trust (TSX: GTU.UN, TSX: GTU.U and NYSE: GTU)) is a closed-end fund operated by many of the same individuals, and employing many of the same practices, as the Central Fund of Canada. Unlike its sister fund, however, the Central Gold Trust is mandated to keep the bulk of its assets in gold, and does not hold silver. As of March 2008, the Central Gold Trust held 5.21 tons of gold in storage.

ETFS Physical Gold

In September 2006 ETF Securities launched ETFS Gold (LSE: BULL) which tracks the DJ-AIG Gold Sub-Index, and later in April 2007 ETFS Physical Gold (LSE: PHAU) which is backed by allocated gold bullion. As of Jan 08 ETFS Physical Gold held 20 plus tonnes of gold in storage.^[3] this is the cheapest gold etf at 39 bps and most efficient for creations. its also part of a stable including ETFS Physical Silver (PHAG) ETFS Physical Platinum (PHPT) ETFS Physical Palladium (PHPD) and ETFS Physical PM basket (includes all 4 metals) (PHPM).

Gold Benchmark Exchange Traded Scheme

On 19 March 2007 Benchmark Asset Management Company, a Mumbai-based mutual fund house, launched Gold BeES (ticker symbol "GOLDBEES") on the National Stock Exchange of India. Shares are sold in approximately 1 gram gold units.

UTI Gold Exchange Traded Fund

On 17 April 2007 UTI Mutual Fund listed Gold Exchange Traded Fund (ticker symbol "GOLDSHARE") on the National Stock Exchange of India. The objective of UTI Gold Exchange Traded Fund is to endeavor to provide returns that, before expenses, closely track the performance and yield of Gold. Every unit of UTI Gold Exchange Traded Fund approximately represents one gram of pure gold. Units allotted under the scheme will be credited to investors’ demat accounts.

Gold-Price-Linked Exchange Traded Fund

On 10 August 2007, Gold-Price-Linked Exchange Traded Fund (code "1328") listed on the Osaka Securities Exchange, Japan. Shares are sold in 1 gram gold units, with a minimum purchase of ten units. Due to Japanese regulations restricting ETFs linked to commodities and precious metals, this GETF is not backed by physical gold but by special bonds traded in London which are linked to the gold price.

Criticism

Unlike physical gold bullion which is held in personally allocated storage, the investor will only become a general creditor if an ETF provider went into liquidation. Gold ETFs are a form of debenture.

During an economic crisis GETF assets may be subject to a compulsory purchase by governments, as seen in Executive Order 6102 of 1933 and the Gold Reserve Act of 1934.