What is a Gold Exchange-traded fund?

This is an ETF which tracks the price of Gold. The funds are publicly traded on all mainstream stock exchanges including New York, Paris, Zurich, Mumbai and London. Gold ETFs, as of October 2009, held 1,750 tons of gold for both private and institutional investors.

A couple of other funds which track the price of gold are Exchange Traded (ETN’s) and Closed-end funds (CEF’s). When looking at the structures of the different funds, including CEN’s, ETF’s and ETN’s they are all different. It’s also a known fact that the individual funds may not physically hold gold. It isn’t uncommon for ETN’s to use derivatives to track the price of gold.

Benchmark Asset Management Company Private Ltd in India first brought to life the idea of a Gold ETF when filing a proposal with the Securities and Exchange Board of India (SEBI) in May 2002. It took until March 2007 to receive all approvals and formally launch. The Australian Stock Exchange actually beat Benchmark when it launched its fund in March 2003 under Gold Bullion Securities.

Broker commissions for trading in gold ETFs is 0.4% along with a minimal storage fee. In the U.S. brokers charge even a smaller amount. Annual expenses for the fund which include management fees, insurance, storage are usually charge by selling a small amount of the gold held.

Gold ETFs, in many countries, are a way to get out of paying sales tax or the VAT which applies to the actually, physical gold coins and bars. As for the U.S., Gold ETF’s are treated as a commodity. Rather than being the 15% long-term capital gains rate for non-collectibles, gold is taxed at 28% because it’s a commodity.

Today the World Gold Council sponsors GETF’s. This is an industry association of all the leading gold mine companies on the globe that was established in 1987. The main goal of the World Gold Council is to stimulate demand for gold on a worldwide level among consumers, investors, and industry.

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