SGOL Abrdn Physical Gold Shares ETF

Over the past year, gold was trapped in the price band of about $1,500 to $1,700 per ounce, due to the lingering economic conditions prevailing all over the world (read: Top Commodity ETFs In This Uncertain Market). In order to boost economic growth, central banks are mulling over unveiling another round of monetary stimulus. As a result, gold and other precious metals are now trading near their multi-month highs.

The interest in the yellow metal has been at an elevated level in the past few weeks as the Republican Party has called for a commission to look at returning to the gold standard in the U.S., for the first time in 30 years. This proposal has raised a lot of buzz among the Americans who are weighing its benefits on the economy and influences on gold prices and gold ETFs (read: The Comprehensive Guide to Gold ETF Investing).

Overall Implications of Gold Standard

The gold standard is the system in which the value of the world’s major currencies is fixed against the gold price. In other words, the dollar is backed by physical gold, which means Americans can exchange gold for money.

The U.S. was on the gold standard in the last century till 1970. In this mechanism, the global supply of money solely depends on the worldwide supply of gold. As the gold supply will be fixed, the ability of the central banks to increase the money supply in order to support growth will be restricted.

The supporters of the systems believe that restricting money supply would increase the confidence in the currency. On the other hand, many others believe that there is not enough supply of gold in the world and further, the supply is growing very slowly.

The fixing of money supply in gold terms will lead to greater demand resulting in higher gold prices. (read Three Currency ETFs Outperforming The Dollar).

However, restricting the ability of the central banks in controlling money supply will increase threats of unemployment and volatility in the U.S. economy. (read: Forget About Low Rates With These Three Bond ETFs).

Looking at history, the U.S. economy suffered five major recessions between 1890 and 1905 when the country was following the gold standard.

The supporters argue that the mechanism will foster economic stability and prosperity through price stability, fixed exchange rates and improved trade balances. 

While the probability of the return to the gold standard is rather low, the debate will continue to raise inventors’ interest in gold and gold ETFs. Further regardless of the debate, gold should be a part of any diversified portfolio as it acts as an inflation hedge and store of value.

Gold ETFs

ETFs provide a safe, low-cost and convenient way to invest in gold. Investors seeking to invest in gold could choose from the following gold ETFs:

SPDR Gold Trust (GLD)

The ETF is designed to deliver the return of the spot gold prices. Launched in November 2004, the fund tracks almost 100% the physical price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. Each share represents about 1/10th of an ounce of gold at current prices.

With total assets of $69.1 billion, GLD is the largest and most popular bullion ETF (read: Ten Biggest U.S. Equity Market ETFs). It is the most-liquid physically backed gold offering in the precious metal space. The fund trades in volumes of about 10.5 million shares per day on average.

Though not a low-cost choice due to its 40 bps expense ratio, GLD has a lower bid/ask spread, which could lessen total costs slightly for this popular fund. The product has returned about 6% year-to-date (as of August 28) and 2% following the proposed gold standard last week.

iShares COMEX Gold Trust (IAU)

Like GLD, the fund tracks the spot price of gold and is backed by physical gold under the custody of JP Morgan Chase Bank in London. Each share represents about 1/100th of an ounce of bullion at current prices.

The product was launched in January 2005 and has managed assets worth $10.1 billion so far this year. IAU charges only 25 bps in fees a year making it the low-cost choice in the entire gold ETF space. The product allocates 100% of its assets to gold on a daily basis, ensuring a good tracking error. While this is good, bid/ask spread is worse than GLD.

The fund is liquid as it trades about 5.4 million shares per day. It has generated excellent returns of about 7% so far in the year including 2% over the last week (as of August 28) (read: Five Best Performing ETFs (So Far) in 2012).

Physical Swiss Gold Shares (SGOL)

Another option available for investors to access the gold bullion market is SGOL, initiated in September 2009. The fund tracks the spot price of gold bullion, net of fees and expenses. SGOL holds physical gold bullion bars of secure vaults in Zurich, Switzerland.

With total assets of $1.8 billion, the product trades in a volume of more than 100,000 shares on average daily basis, suggesting minimal extra trading cost involved in the form of bid/ask spread. The fund charges 39 bps in fees per year from investors. It delivered good returns of more than 6% year-to-date. This reflects 2% gain (as of August 28) following the gold standard comeback proposal.

Physical Asian Gold Shares (AGOL)

Investors looking for a gold play outside the Western countries could find AGOL an intriguing choice. Like many other products in the space, the fund seeks to match the performance of the gold bullion, net of fees and expenses. The product holds bars of secure vaults in Singapore under the custody of JPMorgan Chase Bank, USA.

The fund has so far managed assets of $74.6 million since its inception in January 2011. Trading in paltry volumes, the fund has a wide average bid/ask spread ratio in the physically backed gold ETFs space (read: Use Caution When Trading These Three Illiquid ETFs). However, expense ratio is quite reasonable and in line with other products in the space, coming in at 39 bps per year.

The product returned about 6% so far in the year including 1% over the last week (as of August 28). Unlike many other funds in the space, AGOL has delivered lower returns even after the republic party proposed the gold standard comeback.

PowerShares DB Gold Fund (DGL)

Initiated in January 2007, the product tracks the performance of the DBIQ Optimum Yield Gold Index Excess Return plus the interest income from U.S. Treasury bills, net of fees and expenses (read: The Guide to International Treasury Bond ETF Investing).

With AUM of $390.5 million, the fund is liquid and trades in volumes of 100,000 shares daily. Though the product has a relatively narrow bid/ask spread, it is quite expensive charging 79 bps in fees per year. DGL has shown a nice run-up in its prices, returning more than 5% year-to-date. The product gained less than 2% over the last week (as of August 28) on hopes of the return of gold standard.

RBS Gold Trendpilot ETN (TBAR)

Unlike physically backed Gold ETFs, this fund provides exposure to the Gold Trendpilot Index (read: Are The Trendpilot ETNs Better Than Broad Market ETFs?). The index utilizes a systematic trend-following strategy providing exposure either to the price of the gold bullion or the cash rate, depending upon the relative performance of gold price on a simple historical moving average basis.

If the gold price is at or above the historical 200-Index business day simple moving average for five consecutive business days, then a positive trend is established. Alternatively, if the gold price is below such average then a negative trend is established and the index will track the cash rate, which is the yield derived from a hypothetical notional investment in T-bills.

The former strategy will cost investors 100 bps in fees while the latter strategy will cost 50 bps per annum. Despite being the high-cost choice in the space, the fund has generated good returns of 3% so far this year. The product does not really get a boost from the possible gold standard comeback as it has gained only 0.03% value in the last one week (as of August 28) (read: Bet on a Gold Comeback with the Gold Explorers ETF). The product has so far attracted about $28.7 million of assets and was launched in February 2011.

ETRACS UBS Bloomberg CMCI Gold ETN (UBG)

Investors seeking exposure to a portfolio of commodity futures through a single investment might consider UBG. The ETN seeks to replicate the performance of the UBS Bloomberg CMCI Gold Total Return index, net of fees and expenses. The product delivers collateralized returns from a basket of gold futures contracts, which are spread across five constant maturities ranging from three months to three years (See more ETFs in the Zacks ETF Center). 

With AUM of $8.4 million, the fund is less liquid, suggesting a relatively wide bid/ask spread. It charges 30 bps in fees accrued on a daily basis, making it more expensive than many other products in the space. The product gained about 6% so far in the year, including a 3% increase over a week. 

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ETFS-ASIAN GOLD (AGOL): ETF Research Reports
 
PWRSH-DB GOLD (DGL): ETF Research Reports
 
SPDR-GOLD TRUST (GLD): ETF Research Reports
 
ISHARS-GOLD TR (IAU): ETF Research Reports
 
ETFS-GOLD TRUST (SGOL): ETF Research Reports
 
RBS-GLD TRNDP (TBAR): ETF Research Reports
 
E-TRC UBC GOLD (UBG): ETF Research Reports
 
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