Gold exchange-traded product

Gold exchange-traded product

Gold exchange-traded products are exchange-traded funds (ETFs), closed-end funds (CEFs) and exchange-traded notes (ETNs) that aim to track the price of gold. Gold exchange-traded products are traded on the major stock exchanges including Zurich, Mumbai, London, Paris and New York. As of 25 June 2010 (2010 -06-25), physically backed funds held 2,062.6 tonnes of gold in total for private and institutional investors.[1] Each gold ETF, ETN, and CEF has a different structure outlined in its prospectus. Some such instruments do not necessarily hold physical gold. For example, gold ETNs generally track the price of gold using derivatives.

Contents

History

The first gold exchange-traded product was Central Fund of Canada, a closed-end fund founded in 1961. It later amended its articles of incorporation in 1983 to provide investors with an exchange-tradable product for ownership of gold and silver bullion. It has been listed on the Toronto Stock Exchange since 1966 and the AMEX since 1986.[2]

The idea of a gold exchange-traded fund was first conceptualized by Benchmark Asset Management Company Private Ltd in India when they filed a proposal with the SEBI in May 2002. However it did not receive regulatory approval at first and was only launched later in March 2007.[3] The first gold ETF actually launched was Gold Bullion Securities, which listed 28 March 2003 on the Australian Stock Exchange. Graham Tuckwell, the founder and major shareholder of ETF Securities, was behind the launch of this fund and enlisted N.M. Rothschild & Sons (Australia) Ltd, Citibank and Deutsche Bank as market makers on the ASX.[4]

Fees

Typically a commission of 0.4% is charged for trading in gold ETFs and an annual storage fee is charged. U.S. based transactions are a notable exception, where most brokers charge only a small fraction of this commission rate. 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 share, so the amount of gold in each share 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.

In the United States, sales of a gold ETF are treated as sales of the underlying commodity and thus are taxed at the 28% capital gains rate for collectibles, rather than the rates applied to equity securities.[5]

Exchange-traded and closed-end funds

Central Fund of Canada and Central Gold Trust

The Central Fund of Canada (TSX: CEF.A, TSX: CEF.U, NYSE: CEF) and the Central Gold Trust (TSX: GTU.UN, TSX: GTU.U, NYSE: GTU) are closed-end funds headquartered in Calgary, Alberta, Canada, mandated to keep the bulk of their net assets in precious metals, with a small percentage of cash. The Central Fund of Canada holds primarily a mix of gold and silver, while the Central Gold Trust holds primarily gold.

The custodian of the precious metals assets of both funds is the main Calgary branch of CIBC. Both funds are considered especially safe because of their published codes of governance and ethics, the Central Fund's history of operation since 1961, and the funds' simple prospectuses which equate shares of the closed-end funds with real units of ownership in the trusts. As of October 2009, the Central Fund of Canada held 42.6 tonnes of gold and 2129.7 tonnes of silver in storage, and the Central Gold Trust held 13.6 tons of gold in storage.

Claymore Gold Bullion ETF

In May 2009 Canadian-based Claymore Investments launched Claymore Gold Bullion ETF (TSX: CGL). As of November 2010 the fund held 10.4 tonnes in gold assets.[6]

Exchange Traded Gold

Several associated gold ETF's are grouped under the name Exchange Traded Gold.[7] The Exchange Traded Gold funds are sponsored by the World Gold Council, and as of June 2009 held 1,315.95 tonnes of gold in storage.[7] Exchange Traded Gold securities are listed on multiple exchanges worldwide by various ETF providers, including:

SPDR Gold Shares

SPDR Gold Shares marketed by State Street Global Markets LLC, an affiliate of State Street Global Advisors, accounts for over 80 percent of the gold within the Exchange Traded Gold group. As of 2009, SPDR Gold Shares is the largest and most liquid gold ETF on the market, and the second-largest exchange-traded fund (ETF) in the world.[8][9]

Stock market listings:

The SPDR Gold Trust ETF (GLD) holds a proportion of its gold in allocated form in London at HSBC, where it is audited twice a year by the company Inspectorate. GLD has been criticized by Catherine Austin Fitts and Carolyn Betts for its extremely complex structure and prospectus, possible conflict of interest in its relationships with HSBC and JPMorgan Chase which are believed to have large short positions in gold, and overall lack of transparency.[10] GLD has been compared with mortgage-backed securities and collateralized debt obligations.[10] These problems with SPDR Gold Trust are not necessarily unique to the fund, however as the dominant gold ETF the fund has received the most extensive analysis.

Gold Bullion Securities, ETFS Physical Gold and ETFS Physical Swiss Gold

ETF Securities "Gold Bullion Securities" (previously marketed by Lyxor Asset Management) listings:

Similar to Gold Bullion Securities, ETF Securities’ ETFS Physical Gold (LSE: PHAU) and ETFS Physical Swiss Gold (LSE: SGBS) are also backed by allocated gold bullion. They later launched ETFS Physical Swiss Gold Shares (NYSE: SGOL) and ETFS Physical Asian Gold Shares (NYSE: AGOL) on the New York Stock Exchange for US investors seeking geographical and custodian diversification.

ETF Securities’ physical gold ETCs — ETFS Physical Gold (PHAU), ETFS Physical Swiss Gold (SGBS) and Gold Bullion Securities (GBS) — are all backed by “allocated” gold bars – uniquely identifiable bars which carry no bank credit risk. The precious metal bars are held in trust in London by the Custodian HSBC Bank USA N.A., the world’s leading Custodian for ETCs. The metal held with the Custodian must conform to the rules for Good Delivery of the London Bullion Market Association (LBMA). Securities are only issued once metal is confirmed as being deposited into the Company’s bullion account with the Custodian. Consistent with allocated gold, no precious metal is borrowed, loaned out nor does it earn any income.[citation needed]

Dubai Gold Securities and NewGold

Goldist ETF

Goldist ETF (ticker symbol: GLDTR) was launched by Finansbank in September 2006 on the Istanbul Stock Exchange.[11]

iShares Gold Trust

The iShares Gold Trust was launched by iShares on 21 January 2005 and is listed on the New York Stock Exchange (NYSE: IAU) and Toronto Stock Exchange (TSX: IGT). As of July 29, 2010, the fund claimed to hold 90.88 tonnes of gold in storage. According the prospectus, trading in the fund may be suspended if COMEX gold trading is restricted or gold delivery is not possible. Some writers have expressed doubts that iShares has sufficient gold inventory to back its existing warehouse receipts.[12] One of the main differences between iShares and SPDR Gold Trusts is that iShares creates roughly 100 shares from every ounce of gold, versus the 10 shares per ounce created by SPDR. This makes iShares more accessible for day traders or small investors to play the gold market.[13]

Julius Baer Physical Gold Fund

In October 2008 Swiss & Global Asset Management (formerly Julius Baer Asset Management) launched JB Physical Gold Fund (SIX: JBGOCA, JBGOEA, JBGOUA, JBGOGA) which invests in physical 12.5 kg gold bars (around 400 ounces). The ETF has four unit classes traded in different currencies: CHF, EUR, USD and GBP.[14]

Precious Metals Bullion Trust

On August 14, 2009 Brompton Funds Management Limited launched Precious Metals Bullion Trust (TSX: PBU.UN). The Fund invests in physical gold, silver and platinum bullion bars which are stored on a fully allocated, insured and physically segregated basis in Canada, in the treasury vaults of the Bank of Nova Scotia, a Canadian Schedule 1 bank. PBU.UN publishes its “Good Delivery” standard bar holdings on a monthly basis on its website[15] and units can be redeemed quarterly at Net Asset Value for cash with no limitations. As the physical bullion held by the Fund is entirely unencumbered, unitholders may also choose to redeem quarterly for whole bars of physical gold, silver and platinum bullion (subject to minimum redemption amounts).

Sprott Physical Gold Trust

Sprott Asset Management launched the Sprott Physical Gold Trust as a closed-end fund on February 26, 2010. It is traded on the NYSE Arca (NYSE: PHYS) and the Toronto Stock Exchange (TSX: PHY.U). The fund holds physical gold, stored at the Royal Canadian Mint. PHYS publishes its inventory of Good Delivery gold bars on the web, and (uniquely among gold ETFs) allows shares to be redeemed for whole bars. As LBMA bars weigh between 350 and 430 troy ounces, physical redemption is limited to such increments. Regardless, the provision for physical redemption lends credibility to the fund's claim of holding unencumbered physical gold, especially as of 2010 when funds such as SPDR Gold Shares with elaborately structured holdings are under scrutiny. As of June 2010, the Sprott Physical Gold Trust held 582,417 ounces of gold, plus about $9 million of other assets.[16]

ZKB Gold ETF

The ZKB Gold ETF (SIX: ZGLD, ZGLDEU, ZGLDUS, ZGLDGB) was launched on 15 March 2006 by Zürcher Kantonalbank. The fund invests exclusively in physical 12.5 kg gold bars (around 400 ounces). The ETF has four unit classes traded in different currencies: CHF, EUR, USD and GBP.[17]

Exchange-traded certificates

Source Physical Gold P-ETC

Source, the specialist provider of exchange traded products partnered with BofA Merrill Lynch, Goldman Sachs, JP Morgan, Morgan Stanley and Nomura, listed the Source Physical Gold P-ETC (SGLD) on the London Stock Exchange in June 2009.[18] The product has also been cross-listed on the SIX Swiss Exchange (SIX)in November 2010.[19]

SGLD trades in US dollars and has raised over US$1.1 billion in assets to date.[20]

Each Gold P-ETC is a certificate which is secured by gold bullion held in J.P. Morgan Chase Bank’s London vaults. The vast majority of gold bullion is held in allocated gold bars. Any residual value that cannot be split into standard gold bars will be put into unallocated gold. This is placed in a segregated account with J.P. Morgan Chase Bank acting as Custodian and Deutsche Bank as Trustee. The investment return is achieved by holding gold bullion which is valued daily at the London PM fixing price.[21]

One of the main advantages of this product is the annual management fee, which at 0.29% is considerably lower than comparable competing products. SGLD has achieved UK reporting status, which provides for preferential tax treatment in the United Kingdom.[22]

db Physical Gold ETC

db Physical Gold ETC (SIX: XGLD, LSE: XGLD, FWB: XAD5) was launched by Deutsche Bank in July 2010.[23]

Nomura Gold-Price-Linked ETF

On 10 August 2007, Nomura Asset Management launched the Gold-Price-Linked ETF (code "1328") on the Osaka Securities Exchange, Japan. Shares are sold in 1 gram gold units, with a minimum purchase of ten units. The fund is not backed by physical gold but by bonds traded in London which are linked to the price of gold.

RBS Physical Gold ETC

Royal Bank of Scotland N.V. launched RBS Physical Gold ETC (FWB: XOB1) in April 2010.[24]

Xetra-Gold

Xetra-Gold (FWB: 4GLD) was launched by Deutsche Börse Commodities in December 2007.[25]

Hybrid products

Hybrid products hold mostly physical gold, but also hold other financial instruments such as gold futures, bonds or money market funds.

Benchmark Gold BeES

On 19 March 2007 Benchmark Asset Management Company Private Ltd, a Mumbai-based mutual fund house, launched Gold BeES (NSE: GOLDBEES) on the National Stock Exchange of India. The name is short for "Gold Benchmark Exchange-traded Scheme." Shares are sold in approximately 1 gram gold units. The scheme's assets are 90-100% physical gold, and up to 10% money market instruments, securitised debts (up to 5%), and bonds.[26]

UTI Gold Exchange Traded Fund

On 17 April 2007 UTI Mutual Fund listed Gold Exchange Traded Fund (NSE: GOLDSHARE) on the National Stock Exchange of India. The fund states that its objective is "to provide investment returns that, before expenses, closely correspond to the performance and yield of the gold prices or gold related instruments."[27] 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.[28]

Index-tracking products

ETFS Gold

In September 2006 ETF Securities launched ETFS Gold (LSE: BULL) which tracks the DJ-AIG Gold Sub-Index.

IDBI Gold ETF

IDBI Mutual Fund has launched IDBI Gold Exchange Traded Fund, an open ended Gold Exchange Traded Scheme. The investment objective of the scheme is invest in physical Gold and Gold related instruments with the objective to replicate the performance of Gold in domestic prices. The ETF will adopt a passive investment strategy and will seek to achieve the investment objective by minimizing the tracking error between the Fund and the underlying asset . The New Fund Offer (NFO) open for subscription from October 19 and close on November 2, 2011. The New Fund Offer price is Rs 100 for cash at a premium equivalent to the difference between the allotment price and face value of 100/- each. Allotment price would be approximately equal to the price of 1 gram of Gold. The Scheme does not offer any Plans for investment. The minimum investment amount is 10,000 and in multiples of Rs. 1 thereafter. Entry and exit load charge will be nil for the scheme. The scheme will invest 95% to 100% of assets in gold and gold related instruments and upto 5% of assets in debt and money market instruments. The Benchmark Index will be domestic price of physical Gold

PowerShares DB Gold ETF and ETNs (PowerShares/Deutsche Bank)

Tracks the performance of certain index moves inside the Deutsche Bank Liquid Commodity Index - Optimum Yield Gold [1]. ETNs are exchange-traded notes, which differ from exchange-traded funds (ETFs).

  • DB Gold (NYSE: DGL) (gold ETF)
  • DB Gold Double Long (NYSE: DGP) (long leveraged gold ETN)
  • DB Gold Short (NYSE: DGZ) (short gold ETN)
  • DB Gold Double Short (NYSE: DZZ) (short leveraged gold ETN)

See also

References

  1. ^ Larkin, Nicholas. "ETF Securities Gold Holdings Rise to a Record $10 Billion on Haven Demand" on Bloomberg.com, June 28, 2010.
  2. ^ "CFOC - Option Exercise Press Release July 21 2006". http://www.centralfund.com/pressrel_files/2006/CFOC%20-%20Option%20Exercise%20Press%20Release%20July%2021%202006.pdf. 
  3. ^ "Benchmark, UTI MF get Sebi nod for gold ETFs". The Economic Times. 2007-01-18. http://economictimes.indiatimes.com/Money_Matters/Mutual_Funds/MF_News/Benchmark_UTI_MF_get_Sebi_nod_for_gold_ETFs_/articleshow/1261674.cms. 
  4. ^ "Graham Tuckwell - Chairman". http://www.etfsecurities.com/en/other/etfs_aboutus.asp. 
  5. ^ ETFs, ETNs and Your Taxes: Street One's Paul Weisbruch Explains All
  6. ^ "Claymore Gold Bullion ETF". http://www.claymoreinvestments.ca/en/etf/fund/cgl. 
  7. ^ a b Exchange Traded Gold, Official website
  8. ^ "Largest ETFs: Top 25 ETFs By Market Cap". ETFdb. http://etfdb.com/compare/market-cap/. Retrieved 2010-11-03. 
  9. ^ SPDR Gold Shares Becomes World's Largest ETF
  10. ^ a b Catherine Austin Fitts, Carolyn Betts, "GLD and SLV: Disclosure in the Precious Metals Puzzle Palace", Solari, http://solari.com/articles/Precious_Metals_Puzzle_Palace/ 
  11. ^ Goldist ETF
  12. ^ Nathan Lewis (26 June 2009). "Where's the gold?". The Huffington Post. http://www.huffingtonpost.com/nathan-lewis/wheres-the-gold_b_216896.html. 
  13. ^ Cam Simpson (20 December 2010). "Soros Gold Bubble at $1,384 as Miners Push Buttons". Bloomberg. http://www.bloomberg.com/news/2010-12-20/soros-gold-bubble-at-1-375-has-miners-push-every-button-in-tale-of-tears.html. 
  14. ^ "Julius Baer Physical Gold Fund prospectus". http://www.swissfunddata.ch/fbcdoc/fsm-9085_01-en.pdf. 
  15. ^ Precious Metals Bullion Trust, website
  16. ^ Sprott Physical Gold Trust - Net Asset Value
  17. ^ ZKB Gold ETF, Simplified Sales Prospectus, December 2008
  18. ^ "Source Launches Physical Gold ETC". IndexUniverse.eu. 30 June 2009. http://www.indexuniverse.eu/europe/news/6115-source-launches-physical-gold-etc.html. 
  19. ^ "An ETF issuer launches ETC platform on the SIX Swiss Exchange". ETFwold.co.uk. http://www.etfworld.co.uk/index.php?option=com_content&view=article&id=12683:an-etf-issuer-launches-etc-platform-on-the-six-swiss-exchange&catid=373:etc-world&Itemid=95. Retrieved 18 May 2011. 
  20. ^ "Precious Metals and Novel Indices". Hemscott. 26 April 2011. http://www.hemscott.com/news/comment-archive/item.do?id=130891. 
  21. ^ "Source Launches Physical Gold ETC. 30 June 2009". IndexUniverse.eu. 30 June 2009. http://www.indexuniverse.eu/europe/news/6115-source-launches-physical-gold-etc.html. 
  22. ^ "Source Physical Gold P-ETC granted UK reporting status". ETFExpress.com. 24 November 2010. http://www.etfexpress.com/2010/11/24/68679/source-physical-gold-p-etc-granted-uk-reporting-status. 
  23. ^ "db Physical Gold ETC". http://www.etc.db.com/GBR/ENG/ETC/Productdetails/GB00B5840F36. 
  24. ^ RBS Physical Gold ETC
  25. ^ Xetra-Gold
  26. ^ Gold BeES
  27. ^ UTI Gold Exchange Traded Fund
  28. ^ GOLD ETF in India

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