Displaying items by tag: Commodities

Guest post - This is a contribution from the Boom Bust Blog community. While I value the contributors input, I do not endorse or necessarily agree with the opinions, finding, conclusions or data herein. This is supplied to the BoomBustBlog community as an OpEd piece only.

Traditionally, gold (NYSE:GLD) and copper (NYSE: JJC) had an inverse trading relationship.  Like all things in finance over the long term, that made sense due to the efficiency of the market.  Gold is an asset that is bought almost entirely for speculative purposes as it has very little industrial usage.  Copper, by contrast, is deployed almost entirely for building and commercial purposes such as piping, cable, and wiring, among others.  When economic conditions are bearish, gold soars and copper struggles.  When economic conditions are bullish, it is The Red Metal that surges in value.

But as the chart below reveals, the JJC and the GLD have been following in a co-relationship.   The Yellow Metal should be soaring due to global economic weakness and recent economic stimulus measures from central bankers.   Europe is in a recession, Japan is in the 23rd year of its “Lost Decade,” recovery from The Great Recession is anemic in the United States, and economic growth is declining in China, India and other emerging market countries.

To counter that economic environment, global central bankers have been running the printing presses in overdrive with economic stimulus measures.  Fiat currencies have been issued in massive amounts without any corresponding economic growth.  This combination of a low economic growth and high massive quantities of paper money should have the GLD soaring.  As the chart below shows, however, it has been declining since it peaked in early October, shortly after Federal Reserve Chairman Ben Bernanke initiated Quantitative Easing III.

What has fallen from its high from the same period is the JJC.  The exchange traded fund peaked in late September, after China initiated its $156 billion stimulus program.  As with so many other commodities, China is the world’s largest consumer of copper (about 40%).  Since its stimulus program is concentrated on infrastructure projects, the demand for copper is expected to soar.  As a result, traders piled into The Red Metal after Beijing’s announcement.

Both gold and copper are up again, but for different reasons.  Bullish economic data from China has The Red Metal more in demand.  Naturally, the price rose.  Due to the incredibly irresponsible response by Washington, DC to The Fiscal Cliff, gold jumped in price.  There are now reports of another downgrade ahead for the United States, which makes The Yellow Metal more attractive to traders.  Leading gold broker, Bullionvault.com is also bullish on the long term prospect of gold along with many other analysts such as Cardwell RSI Edge, which expects the run to last way into 2013.

While that explains the short term movements in gold and copper that have mirrored each other, the long term trajectory that is the same moves to the beat of a different drummer.  Due to the flood of liquidity from central bankers in the United States, Europe, Japan and China, the traditional trading patterns for copper and gold have been destroyed.

In the initial rounds of economic stimulus, known as “quantitative easing,” gold and copper moved as before.  After the announcements by Bernanke for Quantitative Easing I and II, gold, copper, oil, and silver would soar as the US Dollar fell.  But the trillions of dollars and other currencies unleashed eventually overwhelmed what the financial markets could deploy to counter the onslaught of paper money by gobbling up commodities.

As a result, the only financial instruments with the depth to absorb all the newly created capital were the government bond markets, particularly those for US Treasuries.  That is why the interest rates are so low for US Government debt even though Washington has failed in economic leadership again, is in danger of being downgraded, and will be adding trillions more to its national debt well into the future with tremendous unfunded liabilities for social programs.

The easy money in trading gold and copper has been made.  Many speculators have lost heavily due to the breakdown in the traditional relationships.  Paradoxically, the future for both gold and copper is bullish.  For The Red Metal, it is positive as China has been registering better economic data, and has over $3 trillion in foreign reserves to engender domestic growth.  The Yellow Metal will surge in the future due to the inability and/or refusal of the world’s central bankers to responsibly deal with the dire economic situations at home.

This article was written by Marcus Holland from FinancialTrading.com.

 Last spring I took a trip to Abu Dhabi and Dubai on a fact findng mission. It was interesting, as the luxury centers in those cities are arguably unmatched  in terms of opulence bling. On the topic of bling, there were several vending machines of interest, one of which in particular caught my eye.

When I was there (March '12), the gold was priced above spot (or at least above what I was able to get it for), but the ability to buy ingots retail, relatively anonymously for cash did intrigue me. The UAE is a cash town, so this should not be a surprise. Now, the question remains, is gold still a worthwhile pursuit considering its run up and subsequent recent correction? Will it really provide practical hedge against the inflation that so many see coming down the pike? Well, let's dabble in the BoomBustBlog archives for some insight...

As excerpted from Deflation, Inflation or Stagflation - You Be the Judge!

In continuing the rant on the possibility of the US entering a stagflationary environment, as was hinted by Alcoa's quarterly report (see "Is My Warning of the Risks of a Stagflationary Environment Coming to Fore?"), I have decided to graphically illustrate the historically most successful inflation hedges. Click graphic below to enlarge.

As you can see from the excerpt above, unless gold breaks its historical correlation with inflation vs other assets, it stands to be outdone as an inflation hedge. Then again, there are many moving parts to this puzzle. We explored an interesting, in depth (although admittedly self serving) perspective on this topic in Trading Physical Gold: Is Gold In A Bubble? - BoomBustBlog

Related reading:

Trading Physical Gold As Easily As You Trade Stocks: Is Gold Becoming A Tradable Currency After All?

Trading Physical Gold vs Investing In A Physical Gold Trust: Which Is Better?

Reggie Middleton Interviews GBI: Gold Bullion International part 3 of 5

Reggie Middleton's Take on Investing for Inflation, pt. 1

Economic contractions AND rising prices, dare Reggie utter the "I" word - Enter a global phenomenon

Global Recession - an economic reality

In continuing the discussion of whether spiking oil prices are indicative of a bubble (reference The Truth About Oil Pricing? Let's Discuss This), I broach the topic of the financialalization of physical energy products.

image007 copy

1. The Role of Speculation in Oil Markets: What Have We Learned So ... www-personal.umich.edu/ We find that the existing evidence is not supportive of an important role of speculation in driving the spot price of oil after 2003. Instead, there is strong evidence that the comovement between spot and futures prices reflects common economic fundamentals rather than the financialization of oil futures markets.
2.  The Financialization of Oil Markets: Potential Impacts and Evidence www.europeanenergyreview.eu/i Apr 24, 2012 – 

   

   
3. Does 'Paper Oil' Matter? Energy Markets' Financialization and Equity ... papers.ssrn.com/ May 30, 2011 – We construct a uniquely detailed, comprehensive dataset of trader positions in U.S. energy futures markets. We find considerable changes in ...
4.  Financialization of Oil Markets | Energy Sector www.nrcan.gc.ca › ... › Crude Oil Prices 2000 - 2010 Financialization of Oil Markets. October 2010. Growing financial investment in the oil futures market may have magnified and influenced the scale of the oil price ...
5. The Financialization of Oil Markets Potential Impacts and Evidence www.oxfordenergy.org/ Mar 28, 2012 – Dr Bassam Fattouh. Oxford Institute for Energy Studies. TheFinancialization of Oil Markets Workshop. The International Energy Agency. Paris ...
6.  More Evidence Against Oil-Price Manipulation | The New Republic www.tnr.com/ Sep 30, 2009 – His key claim is that the financial-ization of oil brought about a change in the term structure of oil futures. A term structure is the relationship ...
7.  Understanding The Current Oil Market - Decline of the Empire

    

   Related BoomBustBlog research: 

   Frontline investment highlights - Pro Page 1

   Frontline investment highlights - Pro Page 2

   Frontline investment highlights - Pro Page 3

   FRO Oil Price Arbitrage Addendumhot! 01/07/2009

   Potential Spillover Effects from the Middle East to the EU 02/02/2011

Investor Reggie Middleton — author of the BoomBustBlog.com — discusses the problems in our banking system with GoldMoney’s Alasdair Macleod. Reggie states that the current zero-interest rate policy being pursued by the Federal Reserve (often referred to as “ZIRP”) is masking problems with banks, but not solving them. He points out the basic truth that money-lending institutions make money off of interest, and that as long as rates remain artificially suppressed, this will constrain lenders’ profits. This is an issue all over the world — something that makes investing in this sector tricky. Middleton argues that the European situation is particularly fraught, on account of their being “too many chiefs and not enough Indians...

See the original interview posting on Gold is Money.

Note: The video in this post had a coding error, hence did not appear. I apologize, and the video has been repaired. Enjoy!

Reggie Middleton Interviews GBI: Gold Bullion International

This is part 2 of a 5 part interview with the principals of GBI - Gold Bullion International (http://www.bullioninternational.com/) - a unique firm located on Wall Street that allows investors (retail & institutional) to actually buy, sell, trade and store physical gold OTC in the investor's own name. Part 1 can be found here. This episode has the CEO comparing and contrasting his services with Eric Sprott's famed Physical Gold Trust. I plan on inviting Eric to offer his viewpoint in rebuttal (if any) to this video. Parts 3 and 4 (yet to be posted) feature some very tough questions. BoomBustBlog interviews are not pushovers or advertisements. You must be able to hold your own. Enjoy!

This is a competitor to GBI: Gold Bullion International. Click the graphic to access site.

The SPDRs GLD prospectus is available here. Highlights:

 Gold exchange-traded product information sourced from Wikipedia, the free encyclopedia

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, 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.

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:

• United States (NYSE: GLD), Japan (TYO: 1326), Hong Kong (HKEX: 2840) and Singapore (SGX:GLD 10US$)

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:

• Australia (ASX: GOL), Belgium, France (Euronext: GBS), Germany (FWB: GG9B), Italy, Netherlands and United Kingdom (LSE: GBS and LSE: GBSS)

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

• Dubai Gold Securities (Sharia compliant) (NASDAQ Dubai:GOLD)
• ABSA "NewGold" debentures (JSE: 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)

Reggie Middleton Interviews GBI: Gold Bullion International

I interview a unique firm located on Wall Street that allows investors (retail & institutional) to actually buy, sell, trade and store physical gold in the investor's own name. This is part one of a four part series. This is the introduction. Parts 2,3, and 4 (yet to be posted) feature some very tough questions. BoomBustBlog interviews are not pushovers or advertisements. You must be able to hold your own. Enjoy!

This is a competitor to GBI: Gold Bullion International. Click the graphic to access site.

Click graphic to the left to enlarge!

The SPDRs GLD prospectus is available here. Highlights:

 Gold exchange-traded product information sourced from Wikipedia, the free encyclopedia

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, 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.

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:

• United States (NYSE: GLD), Japan (TYO: 1326), Hong Kong (HKEX: 2840) and Singapore (SGX:GLD 10US$)

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:

• Australia (ASX: GOL), Belgium, France (Euronext: GBS), Germany (FWB: GG9B), Italy, Netherlands and United Kingdom (LSE: GBS and LSE: GBSS)

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

• Dubai Gold Securities (Sharia compliant) (NASDAQ Dubai:GOLD)
• ABSA "NewGold" debentures (JSE: 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)

I remember ten years ago I jumped in a cab headed downtown (NYC) and the cab driver (a newly minted immigrant from central Asia) and I struck up a spritely conversation after his asking what I did for a living. He then gave me some highly coveted, yet quite unsolicited advice. He told me to "... buy Yahoo stock. It was going to go much higher!"

Well, believe it or not he actually enriched me with that conversation (or more aptly put, allowed me to keep a few pennies). For the price of a 10 minute NYC cab ride and a tip for the conversation and advice, I was able to go home, sell all of my Yahoo positions, and watch Yahoo stock, the tech sector, the Nasdaq and the entire US publicly traded equity market crash like a student drive behind the wheel of a Dodge Hennessy Viper topped off with a few cannisters of NO2 after binging on Jägermeister at a college frat party!

The flier below (and several like it) has been making its rounds through the blue/pink collar email circuit. That's right, now we're having "gold parties"! The gold bugs version of a Tupperware party.  I query, pray thee tell... "Is it time to SHORT GOLD?"