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The Basics of Gold Exchange Traded Funds

Gold Exchange Traded Funds (GETFs) track the price of gold. All major stock exchanges including Paris, New York, Zurich, Mumbai, and London trade GETF’s. Gold ETFs held 1,750 tons of gold as of October 2009.

Another fund which aims to track the price of gold is a closed-end fund (CEFs) and also exchange traded notes (ETN’s). Each gold fund whether it be a CEF, ETN or an ETF has a different structure which is found summarized in their prospectus. These different funds may not physically hold gold. Gold ETN’s for example, traditionally track the price of gold through the use of derivatives.

Benchmark Asset Management Company Private Ltd in India first brought to life the idea of a Gold ETF when filing a proposal with the Securities and Exchange Board of India (SEBI) in May 2002. It took until March 2007 to receive all approvals and formally launch. The Australian Stock Exchange actually beat Benchmark when it launched its fund in March 2003 under Gold Bullion Securities.

Fees for GETFs are very minimal, along with a small storage fee brokers charge no more than 0.4%. Only a fraction of that is charge by brokers in the U.S. Annual costs associated with gold such as storage, selling, management, and insurance are charged by selling a small portion of the gold in a particular portfolio.

Gold ETFs, in many countries, are a way to get out of paying sales tax or the VAT which applies to the actually, physical gold coins and bars. As for the U.S., Gold ETF’s are treated as a commodity. Rather than being the 15% long-term capital gains rate for non-collectibles, gold is taxed at 28% because it’s a commodity.

Gold Exchange Traded Funds are officially sponsored by the World Gold Council. Establish by the world’s leading gold mining companies in 1987, its purpose is to create worldwide demand for gold. The World Gold Council was established in 1987.

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