By Bill Cara –
The info on the new gold ETF is at this link.
The ETF Fact Sheet is at this link.
The GLD Prospectus (for U.S. investors only) is at this link.
How to buy and sell GLD can be viewed at this link.
If you are interested in buying a physical gold bar, this list tells you what is available – for about $180,000 today.
The World Gold Council has done a superb job advocating gold as a store of value. Traditionally investors went to the U.S. Dollar, but recent turbulence in forex markets show the ill wisdom of buying a paper currency, i.e., USD, that is constantly depreciating, but not reflecting that reality. It seems that gold bullion is now to become the de facto “value” standard for investors.
You ought to know that the World Gold Council is a marketing organization for the goldminers industry. Having said that, the truth is that they have always done a solid job in the business of educating, informing and facilitating trade in the gold commodity.
For years I attended their meetings and lunches, and came away impressed.
The gold ETF (NYSE: GLD) ought to become a key trading tool for all serious investors. In time, I think you will also see a similar ETF for Crude Oil, but I don’t think it will work like the GLD instrument for reasons I’ll write about some day.
There is of course a Gold ETF that trades on the Toronto Stock Exchange (TSE: XGD), and is registered for purchase by Canadians. I wrote about this before.
Here is the link to the XGD Fact Sheet. Here is the current list of XGD holdings.
As for trading GLD, you will find that since each share is exactly one-tenth of the current spot (cash) price of gold bullion, within one penny, it will become the best hedge against goldminer shares.
Traders will buy the American Gold & Silver Gold Stocks Index (XAU) or the Toronto Stock Exchange Gold Shares ETF TSE Gold Index and sell the GLD if they believe that commodity price inflation is in a rising cycle, and they will do the opposite if they believe commodity price inflation is falling.
The reason for the spread can be found in the earnings leverage of the goldminer companies. As the gold bullion price (spot or futures) rises, a goldminer’s costs remain constant – or let’s say fairly flat – which means that earnings rise rapidly. When bullion prices fall, the goldminer’s revenues fall faster than its costs, which depresses earnings faster than the decline in the bullion price.
Investors and traders will find an equilibrium in price between the USD and GLD sometime soon – after the current G-20 meetings when all the major economic powers agree to a fair balance among nations re the foreign exchange market.
From that point on, GLD will start to trade on the basis of gold’s appreciation (or possible depreciation) against the trade-weighted paper currencies rather than just the USD-EUD or USD-JPY pairs. I think this is a significant development in the capital markets, one especially interesting to the global bond market.
For short-term traders, the introduction of the GLD ETF should not be something that takes your eye off the ball with regard to trading in the goldminer shares. These share prices have always moved up or down in advance of gold bullion, and will ahead of GLD, because, as I say, that is where the leverage is.
For those of you who are regular readers of TW, and who want to follow the gold market closely, I am soon going to give you a tab for Gold (just like for Brazil, Canada, China and Japan) that will take you to a separate page for specialized ticker jars, commentary, and readers comments and questions that I’ll reply to. This ought to be a lot of fun.
All in all, with the intro of the GLD ETF this is a great day for me, as it has been a great time using TW for education and informing people about the gold market this year.
Source: Trader Wizard Perspective
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