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Gold exchange-traded product

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Funds used to own gold as an investment

Gold exchange-traded products are exchange-traded funds (ETFs), closed-end funds (CEFs) and exchange-traded notes (ETNs) that are used to own gold as an investment. Gold exchange-traded products are traded on the major stock exchanges including the SIX Swiss Exchange, the Bombay Stock Exchange, the London Stock Exchange, the Paris Bourse, and the New York Stock Exchange. Each gold ETF, ETN, and CEF has a different structure outlined in its prospectus. Some such instruments do not necessarily hold physical gold. For example, gold ETNs generally track the price of gold using derivatives.

The funds pay their annual expenses such as storage, insurance, and management fees to the sponsor by selling a small amount of gold; therefore, the amount of gold in each share will gradually decline over time. The annual fee charged by State Street Corporation as sponsor of SPDR Gold Shares, the largest gold-backed fund in the world, is 0.40% of the assets in the fund.

In some countries, gold ETFs represent a way to avoid the sales tax or the Value-added tax which would apply to physical gold gold coins and gold bars.

In the United States, sales of a gold ETF that holds the physical commodity are treated as sales of the underlying commodity and thus are taxed at the 28% long term and 35% short term capital gains tax rate for collectibles, rather than the rates applied to stock sales.

Owners of these instruments may be at risk of the failure of the trustee or custodian.

History

The first gold exchange-traded product was Central Fund of Canada, a closed-end fund founded in 1961. It amended its articles of incorporation in 1983 to provide investors with a product for ownership of gold and silver bullion. It has been listed on the Toronto Stock Exchange since 1966 and the American Stock Exchange since 1986.

The idea of a gold ETF was first conceptualized by Benchmark Asset Management Company Private Ltd in India, which filed a proposal with the Securities and Exchange Board of India in May 2002. In March 2007 after delays in obtaining regulatory approval.

The first gold ETF launched was Gold Bullion Securities, which listed 28 March 2003 on the Australian Securities Exchange, by ETF Securities and its major shareholder, Graham Tuckwell. A history of the birth of the first gold ETFs was published by the London Bullion Market Association in 2021.

On November 18, 2004, State Street Corporation launched SPDR Gold Shares (NYSE: GLD), which surpassed $1 billion in assets within its first three trading days. As of 2019, it was the largest gold-backed ETF in the world and it had more than $40 billion in assets and $1.7 billion in daily trading volume.

In March 2020, the Royal Mint entered the Gold ETF market and listed its first financial product "The Royal Mint Physical Gold - RMAU", making it the first Gold ETF issued by a European Sovereign entity. The fund is 100% backed by physical gold bars, held at the Royal Mint site near Cardiff in Wales.

In February 2021, Wilshire Phoenix launched the wShares Enhanced Gold Trust (NYSE: WGLD) which tracks the Wilshire Gold Index, a proprietary index that uses an adaptive exposure approach to automatically rebalance physical gold and cash based on changing market conditions. WGLD seeks to outperform a stand-alone investment in gold and reduce volatility without the use of any futures, leverage, or derivatives to achieve its investment objective.

See also

References

  1. "Key information". State Street Corporation.
  2. Cummans, Jared (April 24, 2015). "How Gold ETFs are Taxed". ETFdb.com.
  3. Garret, Olivier (March 9, 2017). "3 Reasons Why Investors Should Avoid Gold ETFs". Forbes.
  4. "CENTRAL FUND CLOSES APPROXIMATELY US$57 MILLION SHARE ISSUE" (PDF) (Press release). Central Fund of Canada. March 5, 2008.
  5. "Benchmark, UTI MF get Sebi nod for gold ETFs". The Economic Times. January 18, 2007.
  6. "Successful listing for Gold Bullion Limited" (PDF) (Press release). 28 March 2003.
  7. "Lifting the Lid on the Birth of the Gold ETF". lbma.org.uk. Retrieved 2022-11-21.
  8. "SPDR® Gold Shares, the First US Gold-backed ETF That Changed How Investors Access Gold, Celebrates 15 Years" (Press release). State Street Corporation. November 18, 2019.
  9. "Wilshire Phoenix Launches Innovative Gold ETF, 'WGLD'". ETF Trends. February 18, 2021.
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