Not All Gold ETFs Are Created Equal

It's no secret that ETFs are rapidly attracting investor dollars away from traditional mutual funds and other investment vehicles. Coupled with the rise of the ETF industry as a whole, an extended period of extreme financial turmoil has made gold ETFs one of the most popular investments in today's environment. To meet the demand, a number of gold ETFs have popped up. But buyer beware - not all gold funds are the same.

Here's a look at seven of the largest gold ETFs on the market today, along with their objectives and methodologies.

1. iShares COMEX Gold Trust (IAU): This trust seeks to match the day-to-day movement of the price of gold bullion. IAU has more than $2.0 billion in assets, consisting primarily of gold bullion, and an expense ratio of 0.40%.
2. E-TRACS UBS Bloomberg CMCI Gold Total Return ETN (UBG): This exchange-traded note is a subordinated debt instrument designed to track the performance of the Bloomberg CMCI Gold Total Return Index, which measures the collateralized return from a basket of gold futures. These commodity futures are diversified across five constant maturities from three months to three years, so this ETN may not always track the spot price of bullion exactly.
3. PowerShares Global Gold and Precious Metals ETF (PSAU): This fund is designed to track the performance of the NASDAQ OMX Gold and Precious Metals Index, which measures the performance of globally-traded securities of companies involved in gold and other precious-metals mining-related ac... Since the underlying assets are actually common stocks, this ETF is really not a direct investment in gold, and its performance may vary significantly from the spot price of bullion.
4. ProShares Ultra Gold (UGL): UGL is a leveraged ETF that seeks a return equal to 200% of the daily return of gold buillion, as measured by the U.S. dollar fixing price for delivery in London. As with all leveraged ETFs, compounding of daily returns will likely vary (sometimes significantly) from the target return over that period. As such, UGL is generally appropriate for intraday trading only.
5. SPDR Gold Trust (GLD): Similar to IAU, this ETF attempts to reflect the performance of the price of gold bullion. GLD also holds gold bullion directly, so its price moves closely in line with the price of the actual commodity. Also similar to IAU, GLD maintains an expense ratio of 0.40%.
6. ELEMENTS MLCX Gold Total Return ETN (GOE): This exchange-traded note is in the process of being removed from the NYSE Arca Exchange. In its press release, ELEMENTS notes that GOE, along with two other ETNs, were delisted due to insufficient trading volumes.
7. PowerShares DB Gold Fund (DGL): DGL is based on the Deutsche Bank Liquid Commodity Index - Optimum Yield Gold Excess Return. This index is a rules-based index composed of futures contracts on gold.

So Which is Right For You?

Investors looking for direct exposure to gold may want to invest in an ETF that actually holds bullion, such as GLD or IAU, although DGL and UBG also track the price movements of gold very closely. The table below presents the one-year share price performance for each of these funds. Given the relative consistency returns between these four ETFs, it appears that each does an excellent job of providing investors exposure to movements in the price of gold.

Read the fact sheets for ETFs mentioned in this article: IAU, UBG, PSAU, UGL, GLD, GOE, DGL.

Disclosure: No positions.

Comments

[Kune:]

What about GTU and CEF?

May 27 08:54 AM

[Rhett:]

Yes, 356567, what can you tell us about GTU and CEF? I know they're Canadian, but any details will be appreciated.

May 27 09:00 AM

[Ken P:]

GTU and CEF buy gold and store it in a vault and sell shares based on their gold holdings. That's pretty much it. They don't loan the gold to anyone or buy options to buy gold. They just buy gold (and silver also in the case of CEF) and sell an interest in the holdings.

If you read the prospectus for GLD you will see a different story. They claim to have a certain amount of cold, but nobody can audit it because they hide behind a web of custodians and sub-custodians, none of whom ultimately have to show that they have the gold they claim to have. There is no prohibition against leasing out the gold, but you don't participate in any gains from the leasing. You do however participate in the losses if someone defaults and you don't get the gold back that you leased. Also you can short sell GLD which means there are really more shares outstanding than have actually been issued. Also the ability to short GLD just tends to depress the price of gold. It's really a mess. If your goal is to own gold because you don't trust where the economy is heading and you want capital preservation, then GLD or any of these other products is NOT the the thing to own. They are just more of the same derivative products that got us into this mess in the first place. Don't take my word for it. Do some research. At the very least read the GLD or whatever prospectus before investing and try to read between the lines of what they are saying.

May 27 02:24 PM

[Hedged In:]

I've posted the relevant section from the prospectus on my instablog here:

Hidden Risks in the Gold ETF GLD
seekingalpha.com/insta...


On May 27 02:24 PM Ken P wrote:

> GTU and CEF buy gold and store it in a vault and sell shares based
> on their gold holdings. That's pretty much it. They don't loan the
> gold to anyone or buy options to buy gold. They just buy gold (and
> silver also in the case of CEF) and sell an interest in the holdings.
>
>
> If you read the prospectus for GLD you will see a different story.
> They claim to have a certain amount of cold, but nobody can audit
> it because they hide behind a web of custodians and sub-custodians,
> none of whom ultimately have to show that they have the gold they
> claim to have. There is no prohibition against leasing out the gold,
> but you don't participate in any gains from the leasing. You do
> however participate in the losses if someone defaults and you don't
> get the gold back that you leased. Also you can short sell GLD which
> means there are really more shares outstanding than have actually
> been issued. Also the ability to short GLD just tends to depress
> the price of gold. It's really a mess. If your goal is to own gold
> because you don't trust where the economy is heading and you want
> capital preservation, then GLD or any of these other products is
> NOT the the thing to own. They are just more of the same derivative
> products that got us into this mess in the first place. Don't take
> my word for it. Do some research. At the very least read the GLD
> or whatever prospectus before investing and try to read between the
> lines of what they are saying.

May 27 05:26 PM

[Market Sniper:]

These ETF's are various forms of gold exposure for TRADING ONLY. If you wish to own gold with no second or third parties, intermediaries or in some cases, a counter party, just buy the metal itself and have it under your direct control. Accept no substitutes!

May 27 06:40 PM

[Erick Tippett:]

David Morgan has been on the internet and Jim Popluva's show
a thousand times as have other precious metal spokesmen. When
you purchase these ETFs you are bying a share in that ETF, there is no physical possession. The only way you get to actually own Gold or Silver is to purchase it in the form of coins or bars, etc., Many of these ETFs cannot even proove they have physical possession of the Gold or Silver that they claim. Nothing wrong with some of the ETFs, you just have to be aware that when you buy them you're not owning bullion or anything else physical.

EDT
Chicago, Illinois

May 28 01:21 AM

[johng62:]

What is the best way (that is, what are the best places) to buy physical gold? When I visit the websites of businesses that sell gold coins and bars, the prices are always higher than the per-ounce price that is quoted on CNBC or Bloomberg. Should I ignore the prices quoted in media, and simply buy gold from whichever reputable seller is selling gold at the lowest price?


On May 27 06:40 PM Market Sniper wrote:

> These ETF's are various forms of gold exposure for TRADING ONLY.
> If you wish to own gold with no second or third parties, intermediaries
> or in some cases, a counter party, just buy the metal itself and
> have it under your direct control. Accept no substitutes!

Sep 09 10:14 AM