Gold ETFs: The double-edged weapon!

March 07, 2009

Commodity Online
MUMBAI: Unimaginable increase in gold exchange traded funds (ETFs) is causing concerns across the globe as experts fear that if the bullish sentiment for gold changes things will crash like nine pins.

In the recent past, following the fear over recession, increasing number of investors had opted for gold ETFs dumping equity market.

Again, the phenomenal growth in gold ETF holdings is one of the factors behind the strength in the gold price. But, the lurking fear among analysts is that the bubble may burst.

Bullion held in depositories on behalf of gold exchange-traded funds investors is at record levels . . .  and, in recent days, has been growing by leaps and bounds.  Worldwide total gold ETF holdings now exceed 1325 tons. ETFs now hold more gold than the Swiss central bank. Strikingly, gold held by ETFs now account for more than 40 per cent of identifiable gold investment worldwide.

ETF investors do not actually own physical gold. Although they are 100-per cent backed by physical gold held mainly in allocated form, these securities do not give investors actual ownership with rights to take delivery of physical gold.

It is important for investors to remember that gold ETFs do provide exposure to the gold price — but they do not provide all of the special benefits of actual physical ownership in the form of bullion coins or bars.

The recent rapid rise in gold held by exchange-traded funds is both a cause and response to the sharp rise in the yellow metals price in recent months. 

The rapid growth of gold exchange-traded funds is a two-edged sword for gold, increasing volatility both up and down.  By facilitating gold investment and ownership by individuals and institutions they have, without a doubt, brought significant numbers of new participants to the market and boosted buying by veteran gold investors as well.

The ease of investing in gold via exchange-traded funds is matched by the ease of disinvestment. Selling of gold by ETF investors is as simple and as fast as selling just about any equity or mutual fund.  Just as quickly as gold-ETF depository holdings have grown so might they shrink when sentiment changes.

Originally listed on the New York Stock Exchange in November of 2004, traded on NYSE Arca since December 13, 2007, SPDR Gold Shares now also trade on the Singapore,Tokyo, and Hong Kong stock exchanges.

Another, somewhat smaller gold ETF, the iShares COMEX Gold Trust, with holdings of 68.72 tons (2.21 million ounces) as of February 10th, is also listed on the New York Stock Exchange (NYSE: XAU).

In addition, other smaller gold exchange-traded funds are also traded on a number of stock exchanges around the world, including Australia, France, Mexico, South Africa, Switzerland, Turkey, the United Kingdom.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold to find out more. You may Sell Gold to us too.

[ Back To Home ]