Gold ETF Metal Holdings Rise on Investment Demand
November 13th 2012 at 10:30am by Tom Lydon
Despite gold bullion prices dipping over October, investment interest for gold exchange traded funds has never been better, with fund providers bulking up on physical gold holdings.
According to BNP Paribas, gold ETFs added 43.8 metric tons of physical gold over the month, with SPDR Gold Shares (NYSEArca: GLD) accumulating 15.5 tons, reports Debbi Carlson for Kitco News. [Eight ETFs for Gold Exposure]
While GLD is the biggest gold ETF on the market, with $75 billion in assets and a 0.40% expense ratio, investors can also choose among other options, like the iShares Gold Trust (NYSEArca: IAU), with a 0.25% expense ratio, and the ETF Securities Physical Swiss Gold Shares (NYSEArca: SGOL), with a 0.39% expense ratio.
“IAU has grown because of the lower expenses. For most people, the IAU makes sense, especially if you’re going to be a buy-and-hold investor. Why spend the extra 15 basis points?” Carolyn Hill, ETF analyst at Index Universe, said in the article.
Given that the funds are almost identical in nature, investors would focus on costs.
“(It’s) why people look at the IAU; it’s the 15-basis-point discount in expense ratios. On that face alone, you’re going to outperform any other fund,” Michael Johnston, director of ETF Database, said in the article. “If you are a buy-and-hold investor and you want gold exposure in your portfolio for five, 10, 20 years, you’re better with IAU because the expenses are cheaper.”
“Our Morningstar Estimated Holding Cost metrics indicate that IAU is a cheaper access vehicle,” according to Morningstar analyst Abraham Bailin.
Nevertheless, “if you trade a lot, then use GLD,” Jared Cummans, analyst at ETF Database, said in the story.
Since GLD is so much larger than the competition, its size helps create a more cost effective bid/ask spread.
“[GLD] can also be used periodically as a satellite holding by speculators looking to hedge unexpected inflation or currency depreciation,” Abraham added. “GLD’s exposure is as granular as they come, but it serves as a very reliable access vehicle in a traditionally hard-to-tap segment of the market.”
For other options like SGOL, which holds gold in Swiss vaults, it all depends on an investor’s preference for where they feel gold would be stored the safest. [Swiss Gold: Does It Matter Where ETFs Store Their Bullion?]
“Those concerned with geographical diversification of bullion vaulting will find SGOL attractive,” Bailin said.
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.