Gold exchange-traded product

Gold exchange-traded products are exchange-traded funds (ETFs), closed-end funds (CEFs) and exchange-traded notes (ETNs) that aim to track the price of gold. Gold exchange-traded products are traded on the major stock exchanges including Zurich, Mumbai, London, Paris and New York. As of 25 June 2010, physically backed funds held 2,062.6 tonnes of vaulted gold in total for private and institutional investors.[1] 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.

History

The first gold exchange-traded product was Central Fund of Canada, a closed-end fund founded in 1961. It later amended its articles of incorporation in 1983 to provide investors with an exchange-tradable product for ownership of gold and silver bullion. It has been listed on the Toronto Stock Exchange since 1966 and the AMEX since 1986.[2]

The idea of a gold exchange-traded fund was first conceptualized by Benchmark Asset Management Company Private Ltd in India when they filed a proposal with the SEBI in May 2002. However it did not receive regulatory approval at first and was only launched later in March 2007.[3] The first gold ETF actually launched was Gold Bullion Securities, which listed 28 March 2003 on the Australian Securities Exchange. Graham Tuckwell, the founder and major shareholder of ETF Securities, was behind the launch of this fund and enlisted N.M. Rothschild & Sons (Australia) Ltd, Citibank and Deutsche Bank as market makers on the ASX.[4]

Fees

Typically a commission of 0.4% is charged for trading in gold ETFs and an annual storage fee is charged. U.S. based transactions are a notable exception, where most brokers charge only a small fraction of this commission rate. The annual expenses of the fund such as storage, insurance, and management fees are charged by selling a small amount of gold represented by each share, so the amount of gold in each share will gradually decline over time. All gold ETFs in the United States have an annual expense ratio between .25% and .4%. In some countries, gold ETFs represent a way to avoid the sales tax or the VAT which would apply to physical gold coins and bars.

In the United States, sales of a gold ETF are treated as sales of the underlying commodity and thus are taxed at the 28% capital gains rate for collectibles, rather than the rates applied to equity securities.[5]

See also

References

  1. ↑ Larkin, Nicholas. "ETF Securities Gold Holdings Rise to a Record $10 Billion on Haven Demand" on Bloomberg.com, June 28, 2010.
  2. ↑ "CFOC - Option Exercise Press Release July 21, 2006" (PDF). Archived from the original (PDF) on 2010-11-20.
  3. ↑ "Benchmark, UTI MF get Sebi nod for gold ETFs". The Economic Times. 2007-01-18.
  4. ↑ "Graham Tuckwell - Chairman".
  5. ↑ ETFs, ETNs and Your Taxes: Street One's Paul Weisbruch Explains All
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