The first US exchange-traded fund that tracks the price of gold has raised USD 1.3 billion in just three days from hedge funds and other investors.
The new EFT, called streetTRACKS Gold Shares, began trading on the New York Stock Exchange last Thursday (18 November) and has tapped into a wave of enthusiasm among hedge funds for these new commodity trackers.
Most exchange-traded funds resemble index-tracking mutual funds but trade on an exchange like stocks. This is the first ETF in the US that will track a commodity. It is designed to give investors the opportunity to invest in gold without requiring actual custody of the metal, which can be expensive.
The launch comes amid a run-up in gold prices, triggered by rising oil prices and the fall of the U.S. dollar against leading rival currencies. Spot gold settled down USD 2.20 at USD 442.60 an ounce last Thursday (18 November) on the New York Mercantile Exchange. The prices went as high as USD 448.60 on Wednesday this week in London, a 16-year high.
The ETF has attracted both hedge funds and individual investors who are looking for a hedge against inflation and currency exchange rates, or for diversification, analysts said.
It is sponsored by the World Gold Council and marketed by ETF provider State Street Global Markets. Each share will represent one-tenth of an ounce of gold bullion as priced by the London Bullion Market Association. The 2.3 million shares trade under the ticker symbol "GLD."
The ETF will pay its expenses by selling gold held in the trust as needed. As a result, the amount of gold represented by each share will be reduced over time, from an initial one-tenth of an ounce. Those costs, which are reflected in the net asset value of the ETF trust, will not exceed 0.4 percent annually.
Analysts expect the unprecedented success of streetTRACKS Gold Shares to lead to the listing of several new commodity trackers. A second gold ETF is expected to be launched soon by Barclays Global Investors, the largest ETF provider. It is to be called iShares Comex Gold Trust and will be listed on the American Stock Exchange.
Shareholders' gains will be taxed as if they own the underlying gold, which translates into a higher rate. Under current US law, gains on the sale of "collectibles," including gold bullion, held for more than one year are taxed at a maximum rate of 28 percent, rather than the 15 percent rate applicable to most other long-term capital gains.