Gold etf
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GOLD ETFs in India
There has been a lot of discussion about Gold as an investment class and for people who are interested in buying gold, there are several options.
Gold ETFs Here is a list of some Gold ETFs.
1. SPDR Gold Trust ETF (NYSE: GLD)
2. ISHARES COMEX GOLD (NYSEArca: IAU)
3. POWERSHARES DB GOLD (NYSEArca: DGL)
Gold Mutual Funds
There are a few mutual funds that invest in stock of precious mining companies, as well as in gold and silver directly.
Gold Stocks
Apart from these ETFs, the other way of investing in gold is to own gold mining and exploration stocks. Here is a list of certain gold related stocks:
1. Barrick Gold Corporation (NYSE: ABX)
2. Kinross Gold Corporation (NYSE: KGC)
3. Agnico Eagles Mines Ltd. (USA) (NYSE: AEM)
Gold Coins
Buying gold directly is slightly more complicated than you may expect. This is because there are several different types of gold products, and different dealers offer them at different prices. Gold coins and Swiss Gold bars are common ways of buying gold directly.
Here is a list of popular gold coins:
1. American Gold Eagle Bullion Coins
2. Canadian Gold Maple Leaf
3. Krugerrand Gold Coins
Swiss gold bars are also a very popular way of buying gold directly. There are two popular types of Swiss gold bars:
1. Swiss Pamp Gold Bars
2. Credit Suisse Gold Bars
Gold coins and gold bars can be bought directly from the US Mint, and other gold dealers both online and in stores.
Gold Stock and ETF Derivatives
A slightly more sophisticated way of investing in gold is buying derivative options of gold mining stocks or gold ETFs.
There are several gold ETFs in India, and with the exception of Quantum 1 unit of every gold ETF represents 1 gram of gold. If thats the case then why does the price of these gold ETFs differ?
Shouldnt they be exactly the same?
No, they shouldnt, and before you get to the reasons why they shouldnt its important to understand that the last traded price of an ETF is not the same as its NAV.
Dont compare the last traded price of one ETF to another
A gold ETF owns the following assets:
Gold
Debt and other liquid instruments
Cash
The combined value of these assets divided by the number of units in the gold ETF constitutes the NAV of the ETF.
The NAV of a gold ETF can be seen on its website, so you can see that the Benchmark gold ETF GOLDBEES had a NAV of 1975.26 on 13th December from their website.
However, since an ETF trades in the stock exchange and there is a different price at every tick the price of the ETF can be different from its NAV. The NSE website shows that the last traded price on that day for GOLDBEES was Rs. 1965.25.
This means that the ETF was going at a discount of about Rs. 10 at that point. There are big market participants who are engaged in actively trading the ETF to bring the market price closer to the NAV and gain from any arbitrage opportunities available.
A cheap ETF based on price will be one which is trading at a significant discount to its NAV, but the chances of finding that for a retail investor are really slim, so I wont worry too much about it.
With that in mind, lets look at the reasons why prices between various gold ETFs vary.
Expenses
All ETFs have expenses that are paid out by selling gold holdings or using the income from their debt holdings, so although theoretically one unit of a gold ETF represents a gram of gold in reality the gold holdings are slightly lower due to the expenses. The higher the expenses, the lower would be the NAV, and consequently the trading price of the ETF.
A good example of this is the Reliance gold ETF which had a NAV of 1920.20 on 13th Feb 2011, and was trading at Rs. 1913 on that date.
Compare that to Benchmark GoldBEES price of Rs. 1965.20, and you might think that Reliance is cheaper than GoldBEES, but in fact the opposite is true because Reliance charges higher expenses than Benchmark!
Higher expenses means less low returns for you, and a fund with lower expenses is better for you.
So, expenses eat into the NAV of the various ETFs, and affect their prices.
Composition of assets
Gold ETFs not only hold gold bars, but also debt instruments and cash for some liquidity, so that makes a difference to the NAVs of the different ETFs.
Conclusion
These three factors contribute to the variation in the prices of the different ETFs, and if you are looking for a cheaper gold ETF then you should compare the expenses that different fund houses charge instead of the price at which they trade.
Gold ETFs that Own Physical Gold
1. SPDR Gold ETF (GLD): This fund actually holds physical gold.
2. iShares Comex Gold Trust (IAU): . This ETF also holds physical gold.
Gold ETFs that Own Gold Mining Stocks
1. Market Vectors Gold Mining ETF (GDX): This fund holds stocks of gold mining companies from around the world.
Gold ETFs that own Future Contracts
1. Powershares DB Gold Fund (DGL): This fund holds future contracts which reflect the upwards price movements of gold.
2. E-Tracs CMCI Gold Total Return ETN (UBG): This is an ETN and tracks the upwards price movement of gold.
ETF Double Gold
1. Proshares Ultra Gold (UGL): This fund will give you daily returns and will move double the price of gold in a day.
2. Powershares DB Gold Double Long ETN (DGP): This is an ETN that moves double the gold prices.
Gold Short ETFs
1. PowerShares DB Gold Short ETN (DGZ): This is an ETN that moves up when gold prices go down. So, this works like a gold short ETF where, if the price of gold moves down by 2%, this ETN will go up by 2%
2. PowerShares DB Gold Double Short ETN (DZZ): This is also an ETN that moves up double the amount that gold prices go down. So, if gold prices go down by 2% this fund will move up by 4%.
ETF Gold India
1. Kotak Gold ETF (KOTAKGOLD): This is Kotaks Gold ETF that tracks the price of Gold in India. The ticker is for NSE.
2. UTI Gold ETF (GOLDSHARE): This is UTIs ETF that tracks the price of gold in India. The symbol is GOLDSHARE and is for NSE
3. Reliance Gold ETF (RELGOLD): This is the Reliance Gold ETF that tracks the price of gold in India and the symbol RELGOLD is for NSE.
There has been a lot of discussion about Gold as an investment class and for people who are interested in buying gold, there are several options.
Gold ETFs Here is a list of some Gold ETFs.
1. SPDR Gold Trust ETF (NYSE: GLD)
2. ISHARES COMEX GOLD (NYSEArca: IAU)
3. POWERSHARES DB GOLD (NYSEArca: DGL)
Gold Mutual Funds
There are a few mutual funds that invest in stock of precious mining companies, as well as in gold and silver directly.
Gold Stocks
Apart from these ETFs, the other way of investing in gold is to own gold mining and exploration stocks. Here is a list of certain gold related stocks:
1. Barrick Gold Corporation (NYSE: ABX)
2. Kinross Gold Corporation (NYSE: KGC)
3. Agnico Eagles Mines Ltd. (USA) (NYSE: AEM)
Gold Coins
Buying gold directly is slightly more complicated than you may expect. This is because there are several different types of gold products, and different dealers offer them at different prices. Gold coins and Swiss Gold bars are common ways of buying gold directly.
Here is a list of popular gold coins:
1. American Gold Eagle Bullion Coins
2. Canadian Gold Maple Leaf
3. Krugerrand Gold Coins
Swiss gold bars are also a very popular way of buying gold directly. There are two popular types of Swiss gold bars:
1. Swiss Pamp Gold Bars
2. Credit Suisse Gold Bars
Gold coins and gold bars can be bought directly from the US Mint, and other gold dealers both online and in stores.
Gold Stock and ETF Derivatives
A slightly more sophisticated way of investing in gold is buying derivative options of gold mining stocks or gold ETFs.
There are several gold ETFs in India, and with the exception of Quantum 1 unit of every gold ETF represents 1 gram of gold. If thats the case then why does the price of these gold ETFs differ?
Shouldnt they be exactly the same?
No, they shouldnt, and before you get to the reasons why they shouldnt its important to understand that the last traded price of an ETF is not the same as its NAV.
Dont compare the last traded price of one ETF to another
A gold ETF owns the following assets:
Gold
Debt and other liquid instruments
Cash
The combined value of these assets divided by the number of units in the gold ETF constitutes the NAV of the ETF.
The NAV of a gold ETF can be seen on its website, so you can see that the Benchmark gold ETF GOLDBEES had a NAV of 1975.26 on 13th December from their website.
However, since an ETF trades in the stock exchange and there is a different price at every tick the price of the ETF can be different from its NAV. The NSE website shows that the last traded price on that day for GOLDBEES was Rs. 1965.25.
This means that the ETF was going at a discount of about Rs. 10 at that point. There are big market participants who are engaged in actively trading the ETF to bring the market price closer to the NAV and gain from any arbitrage opportunities available.
A cheap ETF based on price will be one which is trading at a significant discount to its NAV, but the chances of finding that for a retail investor are really slim, so I wont worry too much about it.
With that in mind, lets look at the reasons why prices between various gold ETFs vary.
Expenses
All ETFs have expenses that are paid out by selling gold holdings or using the income from their debt holdings, so although theoretically one unit of a gold ETF represents a gram of gold in reality the gold holdings are slightly lower due to the expenses. The higher the expenses, the lower would be the NAV, and consequently the trading price of the ETF.
A good example of this is the Reliance gold ETF which had a NAV of 1920.20 on 13th Feb 2011, and was trading at Rs. 1913 on that date.
Compare that to Benchmark GoldBEES price of Rs. 1965.20, and you might think that Reliance is cheaper than GoldBEES, but in fact the opposite is true because Reliance charges higher expenses than Benchmark!
Higher expenses means less low returns for you, and a fund with lower expenses is better for you.
So, expenses eat into the NAV of the various ETFs, and affect their prices.
Composition of assets
Gold ETFs not only hold gold bars, but also debt instruments and cash for some liquidity, so that makes a difference to the NAVs of the different ETFs.
Conclusion
These three factors contribute to the variation in the prices of the different ETFs, and if you are looking for a cheaper gold ETF then you should compare the expenses that different fund houses charge instead of the price at which they trade.
Gold ETFs that Own Physical Gold
1. SPDR Gold ETF (GLD): This fund actually holds physical gold.
2. iShares Comex Gold Trust (IAU): . This ETF also holds physical gold.
Gold ETFs that Own Gold Mining Stocks
1. Market Vectors Gold Mining ETF (GDX): This fund holds stocks of gold mining companies from around the world.
Gold ETFs that own Future Contracts
1. Powershares DB Gold Fund (DGL): This fund holds future contracts which reflect the upwards price movements of gold.
2. E-Tracs CMCI Gold Total Return ETN (UBG): This is an ETN and tracks the upwards price movement of gold.
ETF Double Gold
1. Proshares Ultra Gold (UGL): This fund will give you daily returns and will move double the price of gold in a day.
2. Powershares DB Gold Double Long ETN (DGP): This is an ETN that moves double the gold prices.
Gold Short ETFs
1. PowerShares DB Gold Short ETN (DGZ): This is an ETN that moves up when gold prices go down. So, this works like a gold short ETF where, if the price of gold moves down by 2%, this ETN will go up by 2%
2. PowerShares DB Gold Double Short ETN (DZZ): This is also an ETN that moves up double the amount that gold prices go down. So, if gold prices go down by 2% this fund will move up by 4%.
ETF Gold India
1. Kotak Gold ETF (KOTAKGOLD): This is Kotaks Gold ETF that tracks the price of Gold in India. The ticker is for NSE.
2. UTI Gold ETF (GOLDSHARE): This is UTIs ETF that tracks the price of gold in India. The symbol is GOLDSHARE and is for NSE
3. Reliance Gold ETF (RELGOLD): This is the Reliance Gold ETF that tracks the price of gold in India and the symbol RELGOLD is for NSE.
Gold has the potential to move higher in the short term after trading in a tight range around USD 1,750 in the past few sessions, riding on optimism ahead of the summit, but the rise may be stemmed at the key resistance level at USD 1,800, Li added.
Unfortunately for us, if the Eurozone crisis limps on or worsens, the dollars will become dearer again leading to depreciating rupee and thus the gold will much more expensive to buy in Rupee terms
Shepherd
There is a general tendency that whenever the share market is down the gold market is up and vice versa.Kindly clarify whether the value/price of GOLD ETF will depend upon the Sensex/Nifty or upon the gold market in India/world.
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