In its Investor Guide to the Gold market, the World Gold Council noted seven key methods that investors may utilise to have exposure to the Gold market……
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- SGX SPDR Gold Shares® (GLD) ETF total turnover for the month of September increased to a record high of US$428 million from the previous month, while the underlying price of Gold bullion declined 11%.
- In Asia, GLD is cross-listed in SGX, Hong Kong and Japan. SGX maintains the largest market share of GLD with over 48% of Asia volume transacted on SGX. Unlike Gold Futures, the GLD does not extend leverage to the ETF buyer and sellers.
- The minimum, long or short investment in the SGX SPDR Gold Shares® (GLD) ETF, based on the Monday open of US$159.24 is 10 units or 1 ounce at $1,592.40, not including transaction fees.
In its Investor Guide to the Gold Market, the World Gold Council note seven methods that investors may utilise to have exposure to the Gold market. These methods are:
- Gold Coins. The most popular Coin available to investors is the American Eagle coin, composed of 22 karat gold and produced from Gold mined in the US.
- Gold Bars. Bar size varies from one gram to 400 troy ounces and are ‘”typically marked with the name of the manufacturer or issuer, a serial number, the purity of the bar and, at times, the weight”.
- Gold ETFs. The SPDR Gold Shares® ETF (GLD) is “100% backed by physical gold bullion, all of which is held in the form of London Good Delivery 400 troy ounce bars in allocated accounts”. The WGC state that the ETFs that it backs, such as GLD, never engages in derivative transactions.
- Gold Accounts. Gold holdings are stored in a vault and managed by a “recognised bullion dealer or depository”. Accounts can be “allocated”, with specific gold bars allocated to each particular investor or “unallocated”, where investors do not have specific bars allocated to them. The latter is typically the case for size investors.
- Gold Mining Equities: Related equities provide exposure to the price of Gold, rather than ownership with prices influenced by a “broader set of issues than those which drive the bullion markets”. LionGold Corp Ltd, listed on SGX is a mineral and exploration company that has gold exploration activities in Ghana. The SGX identifier is LIGO SP and the stock is up 18.5% year to date.
- Gold Futures and Options: Contracts are traded on regulated exchanges across the world and are leveraged, with minimum investments and price swing exposure higher than required for ETFs and equities.
- Over-the-counter: These products can be priced on a spot or forward basis and are typically reserved for institutional participants.
SGX have provided investors with access to the SPDR Gold Shares® ETF (GLD) since 2006. SGX GLD has experienced increased strong participation over the course of 2011. As noted in the Investor Guide, GLD is a cash-based ETF, implying that the ETF is investing into the physical gold and tracking the spot gold price. In fact, GLD is the largest physically backed gold exchange traded fund (ETF) in the world.
As of Friday 30 September 2011, total gold holdings in the SPDR Gold Shares® Trust stood at 1,231 tonnes. On statistics that revert to 2010, the World Gold Council had estimated that approximately 168,300 tonnes of gold had been mined over the course of human history, of which the portion of ‘financial or investable gold market’ as gauged through ‘private investment and official sector bullion holdings in near-market form’ accounted for approximately 36% or 60,400 tonnes of gold.
The chart below illustrates the change in the price of the SGX GLD alongside its turnover value across the course of 2011. During the month of September the underlying gold price dropped 11% and the price of GLD declined 10.5%. On 6 September, participation in terms of traded value achieved a 2011 record of US$58.1 million.
The GLD average daily turnover was at a record high of US$20 million over the month of September 2011. This was up 4% from the previous month when participation in the GLD had increased in August on account of the volatility that has coincided with Standard & Poor’s downgrading the credit rating of the United States to AA+ from AAA.
The chart below illustrates the gold price as measured by the London Gold AM Fix versus the last closing prices of the S&P500 index as well as the VIX (CBOE Volatility Index). The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge”. As shown in the chart, there has been a clear divergence between the gold price and the performance of the S&P500 Index, particularly in periods of perceived high market risk by investors.
Investors should appreciate that the price of gold can be subject to sudden upside and downside moves, and that past results do not guarantee future performance. Investors must be comfortable with market risks before participating in this market.
The essential information table below notes that the traded value of SGX GLD has amounted to US$1.96 billion in the first nine months of 2011.
SGX currently lists 84 Exchange Traded Funds (ETFs) that cater for a number of assets, investment strategies and risk appetites.
| ETF | SGX Code /BBG Code | Traded Currency & Min. Tick Size | Board Lot Size | Average Spread (as of Sept 11) | Designated Market Maker | Traded Value (US$) Jan – Sep 2011 |
| SPDR Gold Shares® | O87 / GLD SP | USD 0.01 | 10 units | 10.32bps | Citigroup | US$1.96 bn |
Source: ETFWorld – SXG
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