iShares Cuts Price On Gold ETF Below GLD’s

July 07, 2010

iShares slashed the price on its gold ETF 'IAU' by more than a third in what could be a sign that iShares wants to take on SSgA, the giant in the world of gold ETFs.

iShares, the world’s biggest ETF company, cut the price on its physical gold ETF, the Comex Gold Trust (NYSEArca: IAU), by more than a third last week in a possible sign of a price war with its biggest competitor, the SPDR Gold Shares (NYSEArca: GLD).

According to an iShares filing last week, IAU now costs investors 0.25 percent a year, compared with the 0.40 percent price it charged previously and that State Street Global Advisors still charges on GLD.  Another competitor, ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), charges an annual management fee of 0.39 percent. The price change was effective July 1, iShares' BlackRock said in a press release.

Gold has been a hot safe-haven investment this year since fiscal problems in Europe began to create renewed uneasiness about the fragile state of the global economy. GLD rose more than 13 percent in the first half, and closed today about 1 percent higher at $117.73. It has almost tripled in price since its rollout in November 2004, riding a bullish commodity wave that's been building for the past 10 years.

In its press release, BlackRock said the move was an attempt at making its gold ETF more accessible at a time the metal is extremely popular among investors. It also cited IAU's previously announced 1-for-10 share split as part of its plan to make the ETF more attractive to potential investors. In his blog, Matt Hougan argues iShares has a decent chance of stealing market share away from SSgA.

Officials at both San Francisco-based iShares and Boston-based SSgA weren’t immediately available to comment.

SSgA’s GLD is by far the biggest gold ETF, with almost $53 billion in assets at the end of last month, according to data compiled by By contrast, IAU has about $3.36 billion in assets, while SGOL has $607 million.

More Than Meets The Eye

While offering a 37.5 percent discount on price is an eye-catching move by iShares, investors aren’t necessarily going to flock to the broadly similar iShares ETF, which, like GLD, is backed by physical gold held in a vault.

First, there are trading costs to consider, which can add up quickly for those who trade GLD heavily, thus obviating any long-term savings associated with the lower expense ratio. And there are quite a lot of traders who do buy and sell GLD. The gold ETF’s turnover in June was more than $39 billion, the fifth-most traded of all U.S. exchange-traded funds, according to data.

Another important variable is taxes. Commodities, such as gold, and ETFs that hold gold, are taxed as collectibles, meaning even long-term holders of funds like GLD don’t qualify for long-term capital gains tax treatment, and instead have to pay ordinary tax rates of up to 28 percent. That could easily be a deterrent that trumps any cheaper expense ratio for a selling GLD holder who might face such a tax bill.

iShares is owned by New York-based money management firm BlackRock.

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