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Gold ETF turns five. A mountain of fees & a warning sign?

|Includes: SPDR Gold Trust ETF (GLD)
Hedge fund manager John Paulson is opening a new gold fund seeded with a quarter billion of his own wealth. With Paulson the largest shareholder in the SPDR Gold Shares, it’s a timely reminder that the gold ETF turned five today. Happy Birthday, GLD!


Reuters provided some detail on the Wall Street Journal story, which cited three investors who had attended a meeting about the new Paulson fund. The fund will apparently open on 1 January.

We noted last month that Paulson had scored $500 million on his AngloGoldAshanti [AU | ANG] deal.

SPDR Gold Shares took a while to lift off with law suits, SEC nitpicking, and backbiting galore, but it has been a profound success since. Perhaps the greatest success is in the fees the managers are raking off especially as gold prices climb.

Managed by State Street Global Advisors on behalf of the World Gold Council, the fund todayreported an inventory of 35.8 million ounces (1,114 tonnes) worth $41.1 billion.

The fund is currently skimming the equivalent to $15 per ounce in fees and expenses. Obviously that would have to be weighted, but it provides an indication of how rich the fee flow is.

The fund reports selling $0.03466 of gold per share to fund its expenses and fees. That translates to some $13 million a month, or a handy $150 million a year at current levels.

The question for gold bugs now is if the ETF is signaling trouble ahead?

Have a look at the chart below and see how little accumulation has occurred since June when the gold price commenced its recent upward phase.  It’s a very different response from the market compared with the heavy accumulation of GLD between November 2008 and April 2009.

That looks like reason for some caution.

Disclosure: No Position