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A gold exchange-traded fund is an exchange-traded fund (ETF) that aims to track the price of gold. Are open-ended mutual fund schemes that will invest the money collected from investors in standard gold bullion (0.995 purity). The investor's holding will be denoted in units, which will be listed on a stock exchange. Gold exchange-traded funds are traded on the major stock exchanges including Zurich, Mumbai, London, Paris and New York. As of October 2009, gold ETFs held 1,750 tonnes of gold in total for private and institutional investors. There are also closed-end funds (CEF's) and exchange-traded notes (ETN's) that aim to track the gold price.
The first gold exchange-traded fund actually launched was in March 2003 on the Australian Stock Exchange under Gold Bullion Securities. Following the launch of the Gold Bullion Securities, a number of associated GETFs were soon launched on other stock exchanges. In India Gold ETF was launched in March 2007.On 19 March 2007 Benchmark Asset Management Company Private Ltd, a Mumbai-based mutual fund house, launched Gold BeES on the National Stock Exchange of India. Shares are sold in approximately 1 gram gold units.
As of 2009, SPDR Gold Trust is the largest and most liquid GETF on the market and was launched in 2004 by World Gold Trust Services. The Exchange Traded Gold funds are sponsored by the World Gold Council, and as of June 2009 held 1,315.95 tonnes of gold in storage. SPDR Gold Trust marketed by State Street Global Markets LLC, an affiliate of State Street Global Advisors, accounts for over 85 percent of this gold.
The iShares COMEX Gold Trust was launched by iShares on 21 January 2005 and is listed on the New York Stock Exchange and Toronto Stock Exchange. As of April 28, 2009 the fund held 62.32 tonnes of gold in storage.
There are enough reasons why gold should be included in any investor's portfolio whether in physical or paper form. Investing in gold ETFs will give the investor all the advantages of investing in gold while eliminating drawbacks of physical gold -- cost of storage, liquidity and purity, among others.
Gold ETFs are transparent investment vehicles that will have to conform to rigid regulations on investment norms and valuations. This assures the quality of gold that the fund will invest in and transparency in calculation of NAVs and, consequently, the market price at which these units will trade.
Gold ETFs allow investment in gold in small denominations, which makes it easier for the retail investor to participate. On the secondary market, the minimum lot is one unit. This enables the investor to accumulate units over time and reap the benefits of rupee cost averaging. The units can be redeemed either from the fund directly or from the market.
Gold holds its own in any investment evaluation on its strengths as a hedge against inflation, value in the event of political uncertainties and its traditionally negative co-relation with other asset classes such as stocks, fixed income securities and commodities.
The value of goods and services that gold can buy has remained stable unlike currencies that have seen significant fluctuation. A study spanning a 400-year period has shown that the basket of goods and services that gold could buy over the period has remained the same.
Gold protects your portfolio from volatility because the factors, both at the macro-economic and micro-economic fronts that affect the returns from most asset classes do not significantly influence the price of gold. Just after 9/11, while stockmarkets and bonds crashed across the world, gold held steady and, in fact, rose on that day by six per cent.
For a given level of returns from a portfolio, the risk or volatility can be reduced by adding gold to it. Similarly, crises such as wars, which have a negative impact on prices of most asset classes, have a positive impact on gold prices since the demand for gold goes up as a safe haven for parking funds. It is the only medium of exchange completely free of credit risk as it does not imply a liability for any other entity.
Gold ETFs in India
- Kotak Gold
- Goldshare
- Goldbees
- Relgold
- Quantum Gold
- SBI Gets
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