Gold-Based Fund Records Most Successful Start For An ETF

by Phillip Morton, Investors Offshore.com

04 January 2005

A gold-based commodities fund launched on the New York Stock Exchange in November has had the most successful start for an exchange traded fund (ETF) since the instruments were created over ten years ago, attracting almost $1.3 billion in investor funds.

The StreetTRACKS Gold Shares Exchange Traded Fund was launched by the NYSE on November 18 and is the first commodity-backed investment to list on the exchange, giving investors the opportunity to access the gold bullion market through a tradable security with each share representing one tenth of an ounce of gold.

It is unique in the fact that ETFs have traditionally been linked to equities, for example in the S&P 500 or Nasdaq 100. The fund enables investors to track the price of gold without physically purchasing the metal or buying futures contracts.

Seemingly, fund managers unable to buy physical commodities have flocked to the fund as a safe haven investment against the plummeting dollar and as a hedge against a possible shock in the stock markets.

“We use it as a parking place for money,” Bloomberg quoted Gregory Orrell, president of Orrell Capital Management Inc as saying.

Orrell has 7% of its $76 million held in cash and gold-backed shares.

Since hitting a twenty year low in 1999, the price of gold has risen by 73%. Some analysts expect the trend to continue through 2005.

“It's as good a time for the gold business as it has been in a long time,” said Christopher Thompson, chairman of South Africa's Gold Fields Ltd, who thought up the original idea for the fund in 2002, according to Bloomberg.

“And the outlook is quite promising from the perspective of investment demand,” he forecast.

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