Gold exchange-traded funds (or GETFs) are special types of exchange-traded funds (ETFs) tracking the price of gold. Gold exchange-traded funds are traded on the major stock exchanges including London, Paris and New York.
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. It was not launched since it did not receive regulatory approval. 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.
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 August 2007 the fund held 48.22 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 (SWX: [3]). 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) are a public corporation 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 August 2007, the Central Fund of Canada held 23.63 tonnes of gold and 1181.61 tonnes of silver 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 August 2007 ETFS Physical Gold held 2.33 tonnes of gold in storage [4].
Future funds
Other countries, like India and Japan, are proposing to launch GETFs [5] [6] [7].
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.
