Gold ETF

Gold Rally Spurs a Boom in Funds - WSJ.com

Gold Rally Spurs a Boom in Funds
ETF or ETN. Long or Short. It's All There

Investors worried about inflation and the headwinds facing the global economy have been stuffing cash into gold exchange-traded funds.

SPDR Gold Shares (trading symbol: GLD), an ETF that holds more gold than many nations have in their reserves, has seen assets climb toward $35 billion, just shy of a record set in June.

And with the metal's price again flitting around $1,000 an ounce, investment managers are launching gold ETFs to capitalize on the rally.

"After falling to $700 in early November 2008, the price of gold is now retesting the $1,000 level," said Standard & Poor's global-investment-policy committee last week. "Should prices break strongly above the $1000-an-ounce area, we think prices could rise to the $1,200- to $1,500-ounce [range] over the next nine to 12 months."

Gold closed last week at $1,004, and closed Monday at $999.90.
A New Vehicle

U.S. investors got a new gold-tracking ETF last week amid the hoopla over prices cracking the key psychological barrier of $1,000.

ETF Securities Ltd. launched the ETFS Physical Swiss Gold Shares (SGOL) on the NYSE Arca exchange. Shares represent a 10th of an ounce of gold bars stored in Zurich.

The new ETF has a similar structure and fees to SPDR Gold Shares, its well-entrenched competitor that is sponsored by the World Gold Council. The key difference is that SPDR Gold Shares has its bullion stored in London.

"Investors have been asking us for a long time to develop a product that stores its gold in Switzerland," ETF Securities said. The ETF gives investors "a new way to invest in the gold market and an efficient way to geographically diversify their gold holdings," it added.

ETFS Physical Swiss Gold Shares has an expense ratio of 0.39%, compared with 0.4% for SPDR Gold Shares. Investors also have to pay broker commissions to buy and sell ETFs.

There are several exchange-traded funds and notes that provide exposure to precious metals. The iShares Comex Gold Trust (IAU) is another example of a gold ETF that holds the metal, but some other products are tied to futures contracts.

Commodity ETFs that use the derivatives markets have faced heat from regulators amid concern that they are fueling speculation in commodities. Low-cost, liquid ETFs have opened up commodities and other traditionally difficult-to-reach markets to mainstream investors. However, some say this increased access is contributing to market volatility.
Is GLD a Game Changer?

SDPR Gold Shares "changes the dynamics of the gold price, both to the upside and downside," said Vitaliy Katsenelson, director of research at Investment Management Associates Inc.

"If gold keeps climbing, the ease of buying will drive gold prices higher than in SPDR Gold Shares' absence," Mr. Katsenelson said. "In the event of a significant selloff, there are not enough natural buyers of physical gold. It is a bit like a roach motel -- easy to get in, hard to get out."

State Street Corp., the marketing agent for SPDR Gold Shares, disagreed with the characterization. The ETF "is listed and traded on the NYSE Arca which allows for a continuous two-way market for buyers and sellers of SPDR Gold Shares, much like any other listed equity," the company said.

Even with gold again around $1,000 an ounce, the SPDR Gold Shares fund, has traded above $100 a share only once, on St. Patrick's Day in 2008. On Monday, the five-year-old fund closed at $97.96.
Other Avenues

Investors looking for exposure to gold prices have several choices among ETFs and ETNs, including leveraged offerings and bearish funds that let investors bet against the precious metal.

The list includes E-TRACS UBS Bloomberg CMCI Gold ETN (UBG), PowerShares DB Gold Fund (DGL), PowerShares DB Gold Double Long ETN (DGP), ProShares Ultra Gold (UGL), PowerShares DB Gold Double Short ETN (DZZ), PowerShares DB Gold Short ETN (DGZ) and ProShares UltraShort Gold (GLL).

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