QUICK FACTS: Gold ETFs, the people's central bank

QUICK FACTS: Gold ETFs, the people's central bankGold exchange traded products (ETPs), more commonly referred to as ETFs or exchange traded funds, have utterly changed the market in gold over the last decade.

Many market observers give much credit to ETFs for gold's uninterrupted 12-year bull run, because ETFs make it so easy to invest in the yellow metal.

The popularity of the instrument also has a downside. ETFs have added to the volatility in the price of gold and ETFs have sucked up the investor cash that was going into gold mining stocks, leaving the sector undervalued and underfunded.

Here are 10 quick facts about gold ETFs:

  • There are two kinds of gold ETFs: those that invest in gold futures contracts and those that are backed by physical gold stored in vaults.
  • The first gold-backed ETF was launched in Australia almost exactly 10 years ago by ETF Securities and listed in Sydney.
  • In total there are 143 listed gold ETFs around the world, 53 of them backed by physical gold.
  • The first US ETF  – SPDR Gold Trust or GLD – was listed in November 2004.
  • Roughly $2 billion worth of ETF gold is traded every day.
  • Gold bullion holdings hit a record 2,632 tonnes or 93 million ounces in December 2012.
  • Net rise in assets in 2012 equalled $24 billion to a total of $146 billion, but the first quarter this year has seen an almost 7% reduction.
  • This puts retail investors' holdings third behind the US and Germany (not counting the IMF's gold) and on par with the reserves of France and Italy.
  • SPDR Gold Trust is by far the largest gold ETF holding some $63 billion or 1,221 tonnes of gold.
  • ETF shares can only be redeemed in cash, not bullion, except GLD which may provide physical redemption on 100,000 shares or over $15m.
  • BONUS: In the US, investors are deemed to own the underlying bullion directly and are subsequently taxed at a stomach-churning 28% instead of regular 15% capital gains tax. You may be able to bypass this when investing in Canadian gold ETFs (but you didn't hear it from me…)

 

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