The Benefits of Exchange Traded Gold Funds

Since the first half of 2012, the Straits Times Index (STI) has appreciated +2.3% while the price of the Gold has advanced +7.0%. While dividend distributions boost the return of the STI to +3.6% over the period, Gold, as a commodity, does not distribute dividends. This is a distinct difference between stocks and commodities as asset classes.
 
Exchange Traded Funds (ETFs) can provide an efficient, transparent and flexible market for key commodities such as Gold. Other Gold Related Stock Charts here.
 
Participation in Gold ETFs around the world picked up strongly in the third quarter of this year. This was preceded by flat ETF demand in the second quarter of this year, as reported by the World Gold Council (WGC) last week. This meant that the growth in demand for global Gold ETFs averaged over the two quarters was more aligned with the consistent growth in turnover of the Gold ETF listed in Singapore. Singapore Exchange (SGX) lists the SPDR® GOLD SHARES ETF (O87) for trading.
 
The consistent participation of SPDR® GOLD SHARES ETF on SGX means it is the most popular by turnover and second most popular in terms of the number of trades of all ETFs listed on SGX. SGX My Gateway provides daily summaries of the three most popular ETFs by turnover which can be found here.
 
To investors, SPDR® GOLD SHARES represents undivided beneficial ownership interests in a trust, the sole assets of which are Gold Bullion, and, from time to time, cash. SPDR® GOLD SHARES are intended to help investors who are deterred by factors like the logistics of buying Gold, storage and insurance.  
 
With these attributes, SPDR® GOLD SHARES is cross listed on five exchanges, and is one of the world’s most popular ETFs. Nevertheless, at a recent Seminar at SGX, Mr Barney Guarnera, the Chairman of Behre Dolbear, noted that amongst the world’s financial assets, Gold holdings are relatively small.
 
With the price of SPDR® GOLD SHARES ETF at US$165.80, the minimum size of 10 units or 1 ounce cost an investor US$1,658.00 (approximately S$2,030) not including transaction fees. The consistent participation of the ETF means the ETF is liquid and investors will typically be faced with a bid/ask price spread of 5 to 10 basis points. The expense ratio for SPDR® GOLD SHARES is currently 0.40%. SGX also lists two Gold miners LionGold (A78) on Mainboard and CNMC (5TP) on Catalist.
 
The WGC noted that Gold ETF demand “picked up in mid-August, as expectations mounted among investors that further quantitative easing measures would be announced by the Federal Reserve and the European Central Bank at their respective September meetings”. The WGC statistics also revealed that in the 12 months ending September 2012, almost 60% of the world’s investment demand for Gold came from the region through India, China, Thailand, Vietnam and Indonesia.  
 
SPDR® GOLD SHARES ETF is included under the Central Provident Fund Investment Scheme (CPF-IS). Please also note that ETFs are Specified Investment Products (SIPs) due to their potential risk and nature.
 
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Wish to find out how you can use Exchange Traded Funds (ETFs) to build a portfolio? Sign up for the free lunch box business talk @ Central Public Library on 30 November 2012. Details can be found here.

 

Source: SGX My Gateway

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