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[ThatHawaiiGuy]

Gold ETF rakes in $550 mln in debut

By John Spence, CBS MarketWatch.com
Last Update: 5:42 PM ET Nov. 18, 2004


BOSTON (CBS.MW) -- After a long wait, investors rushed in to purchase shares in the first exchange-traded fund for gold Thursday, betting that gold will continue to break fresh 16-year highs as the dollar remains weak.

Investors put an estimated $550 million into the StreetTracks Gold Trust exchange-traded fund on its first day of trading Thursday, the New York Stock Exchange said. Shares of the gold ETF closed down 0.1 percent to $44.38 on trading volume of 6 million shares.

"This one is going to go gangbusters," said Jim Wiandt, editor of IndexUniverse.com.

"It opens up a new asset class to investors," he added. "And, arguably, this could completely tilt the gold market and have macroeconomic consequences."

The World Gold Council is the fund's sponsor, and Boston-based State Street is its marketing agent.

Blocks of 100,000 shares are redeemable into gold bullion, and shares should be priced at about 10 percent of the price of a troy ounce of gold.

The new gold ETF (GLD: news, chart, profile) could open a floodgate of new cash into gold, as it will make investing in bullion easier for investors; many analysts said anticipation of the gold ETF was pushing gold higher before the launch. Some observers are calling for it to hit $450 before the end of the year.


"The introduction of the StreetTracks Gold ETF represents a major step forward for the ETF industry and investors by allowing individuals and small institutions an easy and cost-efficient vehicle to invest in gold as an asset class," said Jim Pacetti, head of the consulting firm ETF International. "Previously, one had to use either the physical gold, with the associated storage and insurance costs and wide spreads, or use derivatives."

The World Gold Council first filed a prospectus with the SEC in May 2003 and managed to beat ETF giant Barclays Global Investors to the punch with its gold fund.

BGI has filed with the SEC to offer a gold ETF called iShares COMEX Gold Trust, which is slated to be listed on the American Stock Exchange.

Together, these products could gather $2 billion in assets in the next six months, Pacetti forecast.

"There is certainly retail demand, but one interesting aspect of this story is that many institutional players had before been restricted from either holding gold directly or holding futures on gold," added Wiandt.

Both ETFs are designed to reflect the price of gold owned by the trust, less the expenses of the trust's operations.

The funds will pay their fees by selling off small amounts of gold bullion. In other words, the fractional amount of physical gold represented by each share will decrease over the life of the trust.

Gold, like artwork, is classified as a collectible by the IRS and is therefore taxed at a higher 28 percent capital-gains rate in the United States after being held for more than one year.

According to filings, both ETFs will be structured as grantor investment trusts rather than registered investment companies, and expenses will be priced identically at 0.4 percent of assets. The Bank of New York will be the trustee for both ETFs.

Gold ETFs had previously been listed in England, Australia and South Africa.

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