Tradable Gold Rush

January 05, 2004

As the price of gold soars, and amidst news that a gold ETF launch may be on the way soon in the U.S., Gold TRAKRS and London gold bullion ETF both enjoy successful launches.
London- January 5, 2004. In the midst of uncertain equities markets, low interest rates and a falling dollar, the price of gold has soared in the last two years from below $300 per troy ounce to over $400 in recent days. Currently at around $425, after opening the year with a $10 price gain, gold is trading at 15-year highs, and like the fall of the dollar, there seems to be no end in sight.

Investors have long turned to gold in times of market uncertainty, and many conservative investors have held a part of their portfolios in bullion or gold mining stocks. Furthermore, gold is considered the ultimate inflation hedge, and with economic growth surging in much of the world, gold bugs see a fundamental reason for the metal's rise as well. Like the fixed-income and value equity investors of the late 1990s, the precious metals crowd took a beating through the last bull market. Now they're back with a vengeance.

Data as of December 31, 2003. More data and charts available at

One problem with gold investing has been that it is historically one of the most inconvenient asset classes for an average investor to access, due to the high costs associated with purchasing, transporting, and safely storing it. Yes, there are many gold mining companies and mutual funds that invest in mining companies - even Vanguard has such a fund. And these stocks do, to some extent, capture the price movement of gold. But many companies are hedged against price movement and involved in other mining activities - and well, they're just not gold. However, the problem with buying bullion is about to change in the U.S.

Already, investors in the U.S. can buy gold futures to achieve gold exposure, as well as Total Return Asset Contracts (TRAKRS) futures contracts that give similar exposure to the price movement, but also provide a return component to investors - giving them the benefits of lending gold, as if they were holding the bullion (and had the market power of Central Banks or major bullion dealers). In addition, new exchange-traded funds (ETFs) in Australia and now in the United Kingdom have enjoyed wildly successful launches. These ETFs actually allow investors to hold gold bullion itself, as stacks of real gold bars in London are what underlie the ETF portfolios. Like any ETF, shares can be bought and sold through any broker like a single stock. And they are coming to the USA soon.

Here is the Registration Statement for the Equity Gold Trust's filing to launch a new gold-bullion based ETF that is slated to trade under the ticker symbol GLD on the New York Stock Exchange, with the World Gold Council as sponsor and the Bank of New York as Trustee. Anticipation for the product in the U.S., and trading in the U.K. and Australian products already trading has been so strong, that some veteran gold traders have said that it is pushing up the price of gold globally.

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