ETF Gold » gold ETF

Gold ETF – Canada

David — Wed, 20 Jan 2010 23:13:07 +0000

If you’re looking for a purely Canadian Gold ETF, Canada has one you may wish to consider; Central Gold Trust (GTU on the New York Stock Exchange or GTU.U on the Toronto Stock Exchange, TSX.) Though technically a closed end fund (CEF), it trades on the stock market just like an ETF and the big advantage to the Central Gold Trust is that it’s a pure gold play, meaning its primary holding is gold. As of the beginning of 2010 GTU’s assets consisted of 97% gold bullion, 1.5% gold certificates, and 1.5% cash for basic working capital. While this seems like it should be obvious many named gold funds actually trade through many other precious metals, gold futures, or simply hold large quantities of cash. The gold in the name is likely used to attract less sophisticated investors.

While some gold funds may be able to perform better, it is more difficult to determine how the fund intends on making money without understanding the fund manager who is employed at the time. Even if you like the prospects of a fund manager they will change over time forcing you to keep up-to-date with who’s currently managing the fund. When you invest in GTU you are truly investing in gold.

Is the Price Worth it?
There is little doubt that in the long term the SPDR Gold Trust (GLD) will likely outperform GTU as you are paying a slight premium to owning GTU. So why invest in GTU at all? Well firstly if you’re Canadian it’s convenient that the fund is priced in both CDN via the TSX and USD via the NYSE allowing you to hold the ETF in your RRSP without incurring foreign exchange fees. However the main benefit of GTU over other ETFs (including GLD) is that unlike other funds, Central Gold Trust does not lease out your gold. Instead they always keep at least 95% of their holdings in insured and fully segregated physical gold. So as far as safety is concerned it doesn’t come much better than this other than storing your own physical gold in safety deposit box of course, which isn’t a bad idea in itself.

Why a Canadian Stock ETF Versus Real Gold?
I like owning both but there are two main reasons I prefer a gold exchange traded fund to buying actual gold:

Liquidity – The reason you invest is to convert your investments into goods in the future. Sometimes a trip to Hawaii is just nicer than a hunk of metal. When you purchase gold and keep it yourself you have to find a broker to convert the gold back into cash. This involves an appraisal, shipping, driving, phone calls, or other general nuisances getting between you and your money. An ETF is traded over a major stock exchange through your normal stock broker. A sell order will be transacted in moments with your cash virtually instantly available.

Reasonable Spread – The spread is the most ignored fee in investing. The spread is the difference between what the market makers are selling an equity for versus what they are buying them for. The spread on stocks is about 1% of the purchase price. This means the gold ETF needs to earn 1% before you earn a penny. Owning gold has a carrying cost of around 7%. If you don’t plan on holding gold for a length of time this 6% difference can bite into your earnings.

Gold ETF – India

David — Fri, 18 Dec 2009 00:05:19 +0000

When looking to international markets for a gold ETF, India would often be first on your list. Why is that? Simply, India has probably the largest fascination with gold than any other country in the world and is by far the world’s largest buyer of gold, accounting for 9.5 percent of the world’s total gold holdings. More impressive is the fact that current demand from India alone consumes 25% of the world’s annual gold output.

Gold is viewed in India as a symbol of power and wealth. However more so nowadays, the people of India buy gold as a hedge of protection from their own rupee currency and government mismanagement. Gold is highly valued so much so that it’s not uncommon for an Indian to use their gold jewelry as collateral for a loan.

It’s no wonder then why India is often associated with gold and why investors would expect a gold ETF in India to be an investment worth considering. Fortunately India doesn’t disappoint as there are currently 6 gold ETFs India has to offer, all of which are traded on the National Stock exchange (NSE).

Now before I get into the specifics of these ETFs, I should mention that if you are a US investor and wish to buy a gold ETF for gold exposure, there’s really no compelling reason to own an Indian gold ETF over an American one unless of course you believe the Indian rupee will continue to devaluate at its current pace which has made Indian gold ETFs quite attractive over the past few years. Long term however, I would personally stick with the most popular ETF gold fund; the SPDR Gold Trust (NYSE:GLD). The GLD has a very large trading volume making it liquid enough for most investors coupled with a low expense ratio (0.6%). Indian gold ETFs on the other hand have typically higher expense ratios ranging from 1% up to 2.5%! Not to say Indian ETF funds are a bad choice; they just wouldn’t necessarily by the first choice for someone living in the US. If you happen to live in India however, they are definitely worth considering as an alternative to owning physical gold.

Here are the 6 gold ETFs available in India:

SBI Gold ETF (SBIGETS.NS) – The State Bank of India’s gold ETF is the newest addition to India’s market.
Gold Benchmark ETF (GOLDBEES.NS) – The most popular and considered by many as the best gold ETF in India.
UTI Gold ETF (GOLDSHARE.NS)
Kotak Gold ETF (KOTAKGOLD.NS)
Reliance Gold ETF (RELGOLD.NS)
Quantum Gold ETF (QGOLDHALF.NS)

Leveraging With a Double Gold ETF

David — Fri, 11 Dec 2009 22:41:43 +0000

A double gold ETF is a leveraged ETF that moves up and down with the price of gold, only doubly so. In other words, if the price of gold goes up 10%, a double gold ETF will go up 20%. Conversely if the price of gold drops 10%, a 2x gold ETF will drop 20% in value.

The attraction for these types of leveraged gold ETFs especially the double long gold ETF has been increasing over the past few years as investors have watched the gold price skyrocket. If you are convinced that the price of gold’s general direction is going to be upward, why not be doubly rewarded as it climbs? Well unfortunately, like most things it’s not really all that cut and dry. Yes, you can drastically increase your yield by investing in a double gold ETF but if you are wrong, even in the short-term, do you have the fortitude to watch the price of gold tumble along with your invested funds? The gold price may come back again and even surpass your projected price, but if you do not have enough conviction of this, you may end up selling for a big loss.

Thus, due to the already extremely volatile nature of the price of gold, gold double ETFs should only be reserved for the most seasoned investor who is not averse to risk and is only risking a small portion of their overall investment portfolio.

Having said that, a lot of investors have been handsomely rewarded for being invested in a double gold fund these past few years and many gold bugs would argue that gold still has a ways to go before it begins to cool off.

If you are one of those investors whose willing to take on the extra risk, you can either invest in a gold ETF or gold ETN. A gold ETN (exchange traded note) is similar to an ETF except that investors hold the debt security until it matures, at which point the issuer will give you the principal amount. Essentially ETN’s have the properties of both an ETF and a bond.

Here are the four main double gold ETF & ETNs to buy:

PowerShares DB Gold Double Long ETN (DGP) will move at the double the gold price and is meant for long gold investments.

PowerShares DB Gold Double Short ETN (DZZ) is the exact opposite of DGP in that it will move at double the price of gold yet in the opposite direction. So if you think gold is going to drop, it’s a perfect investment vehicle for short gold plays.

ProShares Ultra Gold (UGL) ETF will move at double the price of gold and is meant for investors who are long on the gold price.

ProShares Ultra Short Gold (GLL) ETF moves at double the price of gold in the opposite direction, thus ideal for those short on gold.

Best Gold ETF to Buy

David — Wed, 09 Dec 2009 03:39:20 +0000

So what is the best gold ETF to buy that will yield the highest returns possible in a gold bull market? Do I have a personal favorite ETF gold fund? Yes actually I do, but before I get too far into which ETF I think is best overall, it’s important to distinguish first what is meant by a Gold ETF as some investors interpret this differently than others. Essentially there are two different types of Gold ETFs, one is an exchange traded fund that tracks the price of gold, with each share worth 10% of the gold price. If referring to this type of ETF, I like the SPDR Gold Trust ETF (GLD), mainly because it has the highest average daily volume, and thus greater overall liquidity which allows me to trade the stock much more easily on the market.

The other type of Gold ETF, which is the one I want to focus on for this post is an ETF that contains gold stocks and securities sometimes known as a Gold Stocks ETF. This type of ETF is obviously very different than one that simply tracks the price of gold. As such, a gold stocks ETF though influenced by the price of gold, will not directly follow it since you are investing in gold companies and not the price of gold.

So what is the best ETF to buy in terms of those compiled of stocks? Well, I’m going to cheat here and say that I like two; one that trades on the Canadian market and the other on the US Market. The Canadian gold ETF I like is iShares CDN Gold Sector Index (XGD.TO). Traded on the TSX (Toronto Stock Exchange) this gold stocks ETF contains some of the best gold and mining companies in the world including large cap names such as Barrick Gold, Goldcorp, Newmont Mining, Anglogold, Kinross gold, and gold fields. It also contains some very high growth small cap gold stocks including Aurizon Mines, and Red Back Mining. Also, with this ETF being priced in Canadian dollars, some might argue you are better protected from a weakening US dollar. In actuality though, it’s really more of a convenience factor. If you have a Canadian brokerage account, you more than likely want to keep your funds in Canadian currency, particularly for an RRSP account.

The other Gold ETF to buy on the US market is the Market Vectors Gold Miners ETF (NYSE: GDX). Traded on the New York Stock exchange, it is a very similar exchange traded fund to XGD but actually contains 30 holdings compared to the XGD’s 19, so you actually get a broader exposure to the precious metals sector.

Remember though, you don’t have to buy what I like, in fact it doesn’t really matter in the end which particular ETF gold fund you choose so as long as it has sufficient exposure to the gold sector, has had good past performance (meets or exceeds the gold index), and has a relatively low management expense ratio (MER).