Barclays Global Investors Files for Gold ETF

February 09, 2004

Why cover all this ruckus in an index publication?

1) Well, whatever may happen to them in the future, the ETF structure is first and foremost an index structure.  It's ours.
2) Index investors have long been a conservative lot, and I know more than a few, including myself, who have dabbled in gold as a hedging asset class.
3) Most importantly, there have been indexes covering the gold market for a long time.

The big three gold indexes all enjoyed spectacular gains in 2003, but the Amex Gold Bugs Index (HUI: news, chart, profile) closed up more than 67 percent for the year:

  • The Amex Gold Bugs Index (HUI) was up 67% in 2003
  • The CBOE Gold Index ($GOX) was up 44% in 2003
  • The Phili Gold & Silver Index ($XAU) was up 42% in 2003

Gold stocks have not done too poorly on a 5-year basis either, as can be seen from the chart below, which compares 5-year returns of the S&P 500 and Amex Gold Bugs Index.

Source: CBS Marketwatch and BigCharts. 5 year returns of the  S&P 500 (red)
and Amex Gold Bugs index (blue) as of Jan. 2, 2004.

Coming Soon to a New York-based Exchange Near You

While it has been eagerly anticipated since it filed with the SEC in May, the World Gold Council sponsored ETF, which has already come to the market in Australia and the U.K., has been delayed at the SEC.  It is our understanding that the gold bullion-based ETF may now be very near to launch in the U.S., as the SEC has been actively working on the application, and seems to be comfortable that its investor-protection concerns have been met.  The ETF would trade on the NYSE under the ticker symbol GLD.

Although no one who is working on the ETF can directly speak to the press during this "quiet time," it is our understanding that those working on the project are extremely optimistic about the prospects for the bullion-based ETF. They view it as a potential breakthrough product along the lines of the Nasdaq-100 'cubes' (QQQ) in the late 1990s that could reach $10 billion or more in assets within a year of launch.  There is the sense in the ETF community that gold, and perhaps actively-managed ETFs after it, represent the next steps up in ETF development. 

Barclays Global Investors may think so, as we/ve heard they may be working on a gold bullion-based ETF themselves. They had earlier tried to bring a gold companies-based ETF to market in the U.S.  (like the one they have in Canada) but ran into Registered Investment Company (RIC) compliance issues, because of the necessary lack of RIC-compliant diversification with any possible Gold mining companies index. We have also heard rumors that there may be one or more other innovative gold-based ETF proposals under discussion as well.  Certainly the idea is creating a lot of interest.

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