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Brimelow and Rubenstein: Inflation -- if not now, then later
Gold ETF continues to shine;
assets near $2 billion
as fund adds 47 tonnes to holdings
By John Spence
CBS MarketWatch.com
Friday, January 14, 2005
http://cbs.marketwatch.com/news/story.asp?
dist=¶m=archive&siteid=mktw&guid=%7B2FD6CE33%2D85AA%2D4503%2D8F92%
2DB86F1005D39E%7D&garden=&minisite=
BOSTON -- After quickly gathering $1 billion in assets
during its hot mid-November launch, an exchange-traded
fund investing in gold bullion is set to double that
total.
In just the first eight trading days of the new year, the
StreetTracks Gold Trust (GLD) added 47 tonnes to its
gold holdings, or about half of the gold accumulated by
the ETF between its launch and the end of 2004,
according to a research note released Thursday by
Mitsui Global Precious Metals analyst Andy Smith.
In other words, so far in 2005 the gold ETF has added
three times last year's total sales of U.S. Eagle gold
coins, or more than 1,500 tons on an annualized basis.
Through Thursday, the gold ETF had about 142.7
tonnes of the precious metal and a net asset value of
more than $1.9 billion and 45.9 million shares
outstanding, according to the StreetTracks Gold Shares
Web site.
The gold ETF, the first of its kind, is designed to track
the price of gold, net of expenses, with shares based
on the price of 1/10th of an ounce of gold. The physical
gold is held in trust in a vault. With an expense ratio
of 0.40 percent of assets, gold ETF shares trade
throughout the day on the New York Stock Exchange
like a stock.
The World Gold Trust is the sponsor, the Bank of New
York is the trustee, and State Street Global Advisors
is the marketing agent for the ETF.
Although mutual funds that invest in mining companies
have been available for some time, the ETF is the first
fund for individual investors that invests directly in
gold bullion.
Rather than signaling a rush of new investors to the gold
ETF, Smith said, the stunning growth so far this year
could be due to the initial purchasers "averaging down"
now that shares have fallen from the $45 range in late
November.
Shares of the StreetTracks Gold Trust lost 0.7 percent
to $42.30 in Friday afternoon trading.
"This could just as well be about adjusting gold gearing,"
Smith said.
"For those fully-strapped into gold exposure, like gold
equity mutual funds, it makes sense to steer towards
un-geared gold away from highly-geared gold in a falling
market; their relative performance looks better," he
added.
Since the gold ETF launch, the Amex Gold Bugs Index
(HUI), a basket of gold mining companies, has lost about
20 percent. Meanwhile, the open interest in COMEX gold
futures has fallen significantly, Smith said.
Since the StreetTracks Gold Trust is considered a
"continuous offering," the sponsors are not allowed to
actively market or advertise the ETF.
Unlike other ETFs, the gold fund is not registered under
the Investment Company Act of 1940, which regulates
funds that invest in stocks and bonds.
Since it invests in a commodity, under securities laws
the gold ETF can be thought of as an initial public
offering that never ends. Therefore, the gold ETF
cannot market to investors beyond normal financial
reporting and SEC filings.
ETF powerhouse Barclays Global Investors is awaiting
regulatory approval for its own gold fund.
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