Beyond GLD: Gold ETFs to Play the Breakout
August 23rd 2012 at 1:22pm by Tom Lydon
When it comes to gold, most ETF investors start by looking at SPDR Gold Shares (NYSEArca: GLD), the biggest fund backed by bullion. However, traders would be doing themselves a disservice if they didn’t at least consider potential alternatives.
First off, the SPDR Gold Shares tries to reflect the price changes of gold bullion. The fund holds 1,279 tonnes, or about 41.1 million ounces, of gold stored in London vaults, with an approximate value of $67.5 billion. Since the ETF is physically backed by gold bars, each share of GLD represents ownership of about 0.097 ounces of the actual gold. GLD has a 0.40% expense ratio. The ETF is up 4.5% year-to-date. [Gold ETF Investors Buying the Breakout]
In addition, investors could look at other physically-backed gold ETFs that try to track the price movements of gold bullion, including:
ETFS Physical Swiss Gold Shares ETF (NYSEArca: SGOL) holds almost 1.1 million ounces of gold bullion bars stored in Zurich, Switzerland. Each share of SGOL amounts to 0.099 ounces of gold. SGOL has a 0.39% expense ratio. The ETF is up 4.5% year-to-date.
ETFS Physical Asian Gold Shares ETF (NYSEArca: AGOL) has 44,575.4 ounces of gold stored in Singapore. Each share of AGOL represents 0.099 ounces of gold. AGOL has a 0.39% expense ratio. The ETF is up 4.3% year-to-date.
iShares COMEX Gold Trust ETF (NYSEArca: IAU) holds almost 6.0 million ounces of gold stored in Toronto, New York and London. Each share of IAU translates to 0.0097 ounces of gold. IAU has a 0.25% expense ratio. The ETF is up 4.7% year-to-date.
Unlike the other gold funds, the Powershares DB Gold Fund ETF (NYSEArca: DGL) tries to provide exposure to gold price movements through gold futures. Additionally, the fund margins its futures with three-month U.S. Treasuries, so the total returns also include interest earned. DGL has a 0.75% expense ratio. The ETF is up 3.6% year-to-date.
Futures add a time component to the price. When tomorrow’s cost is higher than the current spot price, the market is in contango, and the inverse is called backwardation. If the market is in contango, futures-based commodity ETFs can lose money when they roll their contracts. [What is an ETF? — Part 22: Commodities]
Moreover, physically-backed and futures-based ETFs are taxed differently. Since gold-backed ETFs hold bullion, the funds are taxed as collectibles, with a maximum tax rate of 28%. DGL, though, will be treated with a 60% long-term and 40% short-term tax rate.
For more information on gold, visit our gold category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.