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Gold exchange-traded fund
From Wikipedia, the free encyclopedia
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.
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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.
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.
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 run in association with the World Gold Council, and as of January 2007 held 560.49 tonnes of gold in storage [1].
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 January 2007 the fund held 44.45 tonnes of gold in storage [2].
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 January 2007, ZKB Gold ETF held 1.53 tonnes of gold in storage.
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 January 2007, the Central Fund of Canada held 22.79 tonnes of gold and 990.59 tonnes of silver in storage.
In September 2006 ETF Securities launched ETFS Gold (LSE: BULL), which tracks the DJ-AIG Gold Sub-Index. Unlike other GETFs, ETFS Gold is not backed by physical gold bullion.
Other countries, like India, are proposing to launch GETFs [4].
An open issue is the need for trade associations to assume a greater role to ensure fair market practices in respect of purity and other standard specifications as there is no self-regulatory organisation in the mutual fund industry. Other issues of importance for these newly emerging financial instruments include valuations, fees and expenses, capital adequacy norms and counter-party risks as well as liabilities and responsibilities of the market participants like the custodians.
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.
- Exchange Traded Gold
- The ETF Phenomenon from TheStreet.com