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Gold ETFs are special types of exchange-traded funds (ETFs) tracking the price of gold. Gold ETFs are traded on the major stock exchanges including London, Paris and New York.
The idea of gold ETF was first officially conceptualized by Benchmark Asset Management Company in India when they filed a proposal with the SEBI in May 2002. It was not launched since it did not receive regulatory approval.
The first gold exchange-traded fund actually launched was in March 2003 on the Australian Stock Exchange under Gold Bullion Securities (ticker symbol "GOLD"). Gold Bullion Securities (GBS) are fully backed by gold which is both deposited and insured. GBS was launched to give financial institutions and private investors the ability to own gold and gain exposure to the price, without the inconvenience of storing physical bars.
With the dollar in decline, gold ETFs are looking, well, like a golden investment opportunity. Gold is generally considered a safe, solid and sturdy investment whenever the dollar's value decreases.
Investing in Gold ETF protects your portfolio against fluctuations in the value of any one asset class. Gold is an ideal diversifier, because the economic forces that determine the price of gold are different from, and in many instances opposed to, the forces that influence paper based financial assets such as stocks and bonds.
Demand for gold is about 3800 metric tons per year. The supply of gold is declining and is currently about 2500 tons per year. As we all know declining supply and increasing demand leads to increased prices. Emerging-market countries and price volatility were the driving forces behind the demand increase, according to the World Gold Council.
ETFs that focus on Gold include:
- streetTRACKS Gold Shares ETF (GLD): The objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust's expenses.
- iShares COMEX Gold Trust ETF (IAU): The iShares COMEX Gold Trust seeks to correspond generally, to the day-to-day movement of the price of gold bullion. The objective of the Gold Trust is for the value to reflect, at any given time, the price of gold owned by the Gold Trust at that time, less the expenses and liabilities of the Gold Trust.
- PowerShares DB Gold Fund (DGL): The PowerShares DB Gold Fund is based on the Deutsche Bank Liquid Commodity Index - Gold and managed by DB Commodity Services LLC. The Index is a rules-based index composed of futures contracts on gold and is intended to reflect the performance of gold.
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