A Gold Exchange Traded Fund For Liquid Gold Exposure
One innovative way of gaining gold exposure is through a gold exchange traded fund (or ETF) designed specifically to track the price of the yellow metal. These gold ETF’s are traded on a number of the major global stock exchanges, giving commodity traders an opportunity other than the futures route to trade this precious metal. Gold exchange traded funds also give investors in different jurisdictions the opportunity to invest on the most appropriate exchange for their needs.
Get your FREE INO Trading Alerts when you subscribe to our free Commodity Universe Newsletter here. Just complete the simple form below. It's as easy as 1-2-3!
As a collective umbrella of gold exchange traded funds, these ETF’s are referred to as Exchange Traded Gold, an initiative of the World Gold Council. Following extensive consultation among potential gold bullion investors, the World Gold Council found that there was a significant market for the right product that would address problems of cost and avoid complications often associated with holding gold in bullion form. Buy gold online - quickly, safely and at low prices So looking beyond a simple storage of physical gold bullion, gold coins, certificates or gold futures on exchanges such as COMEX and TOCOM, the solution was the Gold Exchange Traded Fund (Symbol: GLD), originally introduced in Australia. The GLD fund was launched in the US in 2004 and now trades on the NYSE Arca platform and was renamed SPDR Gold Shares in May 2008. With SPDR Gold Shares investors (NYSE Arca: GLD) and traders have a vehicle which is as close a proxy to gold as possible with the added benefit of trading platform as liquid as mainstream equities on a regulated stock exchange. Ownership and how it works Each share represents an indivisible, beneficial interest in and ownership of the GLD trust, which has as its assets allocated gold bullion and occasionally cash. There are no derivatives transacted by the trust. The shares track the gold price and the return is based on the price of the metal less administration fees. Allocated gold bullion bars of 400 troy ounces in London good delivery, and stored in a vault of a leading bank, give 100 per cent backing to the issued shares. The designation “allocated” is highly significant because it means that the specific gold bullion bars owned by the trust are identifiable and are segregated from other bars in the vault. In this way the assets of the trust cannot be leased out into the market. An individual trader or investor does not transact with GLD trust itself but rather with an Authorised Participant (or “AP”), usually brokerage firms who handle the share transactions in GLD. The AP’s will have unallocated gold accounts with the leading bank which they will use to manage the creation and cancellation of shares in SPDR Gold Shares when NYSE Arca is open for trading. A key aspect of this ability to create and redeem shares is that any potential differences between the price of physical gold and the GLD share price is minimised. Addressing market liquidity concerns One of the concerns often expressed by potential gold investors is the issue of liquidity in the market for the shares. This is where the AP’s play an important role. As the market makers in GLD shares they will assess availability of the shares on NYSE Arca when they receive buy orders. So if in their opinion there is not enough liquidity in the shares they can buy more gold and transfer it to the trust. This prompts the trust to create extra GLD shares which it issues to the AP who then executes the order for the client. Where are SPPDR shares traded? Other Securities under the Exchange Traded Gold umbrella If you are resident in the UK or other main European states you will be able to gain exposure to the gold price by trading or holding shares in Gold Bullion Securities. On LSE (UK), ticker GBS, on Deutsche Borse (Germany), GG9B, Euronext Paris (France , Belgium and Netherlands), GBS, and Borsa Italiana (Italy), GBS. For investors in Australia “Gold” are traded on the ASX, while in South Africa, “New Gold” shares are traded on the JSE. Uses of Exchange Traded Gold securities It is possible for commodity traders to participate in buying and selling of these gold ETF’s within their own jurisdiction and market, as shown above. The shares are available to use in margin trading accounts. Another approach is to place gold exchange traded fund shares in your retirement pension plan, such as a 401K plan in the US or via a SIPP under UK legislation, where in effect it is possible to get up to a 40 per cent discount on the purchase. You are advised in all cases, whichever tax jurisdiction applies, to seek professional advice from your financial advisor.
Supply of gold, Mining as primary source Investing in gold, protection against inflation Gold in backwardation, attraction of the physical metal
Aggregate gold holdings of the exchange traded funds The total weight of gold in these trusts will change over time as a result of either a net addition or net divestment of the holdings, depending on overall demand and supply. As an example, based on information shown by Exchange Traded Gold, on 14 December 2008, the total gold represented by the shares in issue by the above funds amounted to 917.58 tonnes or 29,501,019 ounces. The major component is made up by SPDR Gold Shares (traded on NYSE, HKEx, TSE and SGX) which represents 83.06 per cent (762.17 tonnes), followed by Gold Bullion Securities (UK, Europe) at 12.75 per cent, and Gold Bullion Securities and New Gold Debentures (Australia and South Africa respectively) at 4.19 per cent. So in these difficult and uncertain times if you are looking to gain more exposure to gold as part of your strategy, using a gold exchange traded fund may be one way of contributing to your objectives.
|
