With four different
offering physical storage of gold, investors may feel like they are
at Best Buy trying to find the best plasma TV.
Fortunately, there are some key differences between the funds
that will make the decision easy, as long as you care about these
But if all you care about is investing in gold without having to
bury it in your backyard or store it in a safe, the decision is
even easier:Buy the iShares Gold Trust (NYSEArca:IAU) and use the
savings to buy more.
The four grantor trust ETFs that hold physical gold differ
mostly in their expense ratio and vaulting, with little else
differentiating them. After all, gold in Mumbai is the same as gold
in Carson City, Nev.
The problem is, some gold investors aren't just concerned about
how much it costs to access the yellow metal; they also care about
where that metal is held.
After all, if you're buying gold to protect against the
apocalypse or currency crisis, you want to be sure your gold is not
only where your custodian says it is, but that it is deposited in a
place that isn't likely to see a government confiscation or
In other words, some investors want to know that their gold is
accounted for and insulated from the corruptibility of elected
officials and banking magnates.
Without trying to paint the entire gold investment community
with too broad a brush-and dipped in a bucket of conspiracy
theorist paint-it's still important to touch upon each physically
backed gold ETF's value proposition and, by extension, which
investors are likely to be wooed by it.
Let's start with the SPDR Gold Shares (NYSEArca:GLD), the $70
billion behemoth. GLD is more expensive than the three competing
physically held gold ETFs based on its headline expense ratio. The
round-trip retail cost of GLD is higher than IAU, equal to SGOL and
cheaper only than AGOL.
Where GLD really makes its mark is with institutions. Because
the fund trades more than $1 billion a day, active traders and
money managers get the best liquidity available.
Moreover, the fund has a deep and active options market that
extends the liquidity of the ETF beyond just the primary and
Moreover, because the handle on GLD is more than 1/10 an ounce
of gold compared with 1/100 an ounce of gold for IAU, the number of
shares required to get the same nominal exposure in GLD is 10 times
less than for IAU.
For retail investors trading through their online broker, this
doesn't matter, but for institutions paying a per-share commission
to authorized participants or liquidity providers, this matters,
and it pushes the cost equation for GLD well below that for
As for vaulting, GLD's gold is vaulted in London and constitutes
one of the largest gold hoards in the world, let alone the gold ETF
IAU is the obvious choice for the buy-and-hold retail gold
investor. The round-trip retail cost for IAU is the cheapest in the
segment, making it a no-brainer for anyone unconcerned about the
location of the gold held by the fund. As far as that goes, IAU's
gold is vaulted around the world.
SGOL And AGOL
These two ETF Securities portfolios are for the discerning gold
investors who want the peace of mind of knowing that their gold is
held in a specific place.
Both funds charge 1 basis point less than GLD, but are nowhere
near as liquid. SGOL is much more popular and liquid than AGOL,
which has yet to fully catch on with investors.
Institutions may use either fund to establish long-term
positions, but trading either fund actively is like throwing money
away, considering the fact that GLD is one of the most liquid ETFs
in existence, let alone one tracking physical gold.
AGOL vaults its gold in Singapore, one of the most trusted and
transparent financial markets in the world. SGOL, on the other
hand, vaults its gold in Zurich, one of the few countries still
viewed as a "safe haven." To that end, the value to investors is
not just peace of mind, but transparency:The ETFs guarantee the
location and segregation of your gold at all times.
The four funds appeal to different investors, and for a
commodity strategy that holds a fully fungible, highly liquid
commodity, that's not necessarily an easy thing to accomplish.
At the time this article was written, the author held no
positions in the securities mentioned. Contact Paul Baiocchi at
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