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WIKI ANALYSIS
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This article describes an exchange traded fund that tracks an index, commodity, currency, or varied basket of securites. View articles referencing this fund. |
Gold is widely perceived as a safe-haven investment. It holds its value despite large changes in the stock market. However, the acquisition and storage prices of gold bullion make it prohibitively expensive for most people to own any. StreetTRACKS Gold Trust solves this problem by accepting deposits of gold bullion and distributing shares in return. The shares are meant to approximate the gold market as closely as possible. Therefore, StreetTRACKS makes it possible for more people to participate in the gold market without actually owning any bullion. It is important to note that investing in gold does not just include bullion; gold jewelry holds its value just as well--it makes up 25% of worldwide gold supply.[1] The 2007 Credit Crunch led to a loss of consumer confidence as well as an increase in gold demand--investors sought out the investment they felt was safest. This initially caused gold prices to rise. However, the strengthening U.S. dollar has led to a decrease in sales as the stronger dollar has led many to seek out liquidity and sell their assets.
Business and Financials
StreetTRACKS Gold Trust (started in 2004) is an investment trust. The Trust holds gold and issues streetTRACKS Gold Shares in blocks of 100,000 Shares (Baskets) in exchange for deposits of gold and distributes gold in connection with redemptions of Baskets. The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion. Originally, the details of buying, storing and insuring gold have made it difficult for most investors to enter the gold market on their own. StreetTRACKS Gold Trust solves this issue by creating securities that follow the gold market. The Trust is sponsored by World Gold Trust Services, LLC. HSBC Holdings (HBC) holds StreetTRACKS's gold.[2]
The Trustee values the gold according to the most recent London PM Fix.[3] The London Fix is a widely-recognized benchmark for gold and silver prices. It is announced twice each day: the AM fix occurs in New York City at 5am (10am in London), and the PM fix occurs in NYC at 10am (3pm in London).[4] Once the gold has been accurately priced, the Trustee then subtracts all accrued but unpaid fees in order to arrive at an Adjusted Net Asset Value (ANAV). The Trustee then uses the ANAV to calculate GLD's fees (to the Trustee, the Sponsor, the Custodian and the Marketing Agent) to arrive at the Net Asset Value (NAV).[5]
GLD's gain on gold and net gains have increased greatly since its inception on November 12, 2004. To date, GLD has received 23,391,238 ounces of gold.[7] StreetTRACKS has traded 4,724,800 ounces of gold in exchange for 476 baskets.[8] Also, GLD has sold 112,373 ounces of gold total in order to pay expenses.[9] It is important to note that GLD sells only enough gold to cover its costs, meaning the company never has any spare cash.[10]
| ' | 9/30/2007 | 9/30/2006 | 9/30/2005 |
| Ounces of Gold: | |||
| Opening Balance | 12,422.50 | 6,669.30 | 30 |
| Creations | 9,121.70 | 6,805.20 | 7,464.20 |
| Redemptions | -2,901.70 | -1,013.60 | -809.4 |
| Sales of gold | -58.4 | -38.4 | -15.5 |
| Closing Balance | 18,584.10 | 12,422.50 | 6,669.30 |
| Gold price per ounce - London PM fix | 743 | 599.25 | 473.25 |
| Market value of gold holdings | 13,807,984 | 7,444,182 | 3,156,223 |
| Number of Shares: | |||
| Opening Balance | 125,100 | 66,900 | 300 |
| Creations | 92,100 | 68,400 | 74,700 |
| Redemptions | -29,300 | -10,200 | -8,100 |
| Closing Balance | 187,900 | 125,100 | 66,900 |
| Net Asset Value per share ($thousands): | |||
| Creations | 65.52 | 55.56 | 43.68 |
| Redemptions | -65.03 | -63.48 | -44.49 |
| Net Gain/(Loss) for the period | 2.05 | 1.3 | -0.11 |
| At Period End | 73.46 | 59.48 | 47.16 |
| Shares at redemption value to investors at Period End | 13,803,588 | 7,441,489 | 3,155,107 |
| Change in Redemption Value over the period | 85.50% | 135.90% | 240.19% |
| % Difference between Net Asset Value per share and market value of ounces represented by each share | -0.032% | -0.036% | -0.035% |
GLD has experienced rapid growth since its inception in 2004. Gold is an attractive investment because its value is detached from the general economy. StreetTRACKS Gold Trust has made it much easier to participate in the gold market, since it was no longer necessary to actually purchase and store gold on one's own. Therefore, GLD's business has increased greatly in the last three years.
Trends and Forces
Many Investors See Gold as a Safe-Haven Investment
As mentioned before, gold tends to retain its value despite movements in the stock market. Therefore, gold serves as insurance against a risky stock market. This has made gold a very attractive investment. The 2007 Credit Crunch made gold even more attractive as investors hurried en masse to the asset they felt was safest.[12] StreetTRACKS' holdings increased by 26% since Lehman Brothers (LEH) went bankrupt.[13] There is an inverse relationship between the economy and the gold market: the worse the economy becomes, the more money goes into gold as a safeguard against losing any more money.
Gold Prices are Beginning to Fall
Although demand for gold increased as it was (and still is) widely perceived as a safe haven investment, that trend has not been reflected in gold prices. Gold prices reached a yearlong low of $699 an ounce on October 24[14], compared to an all-time high of $1,030.80 an ounce in May.[15] In addition, StreetTRACKS' holdings have decreased from 770.6 tons on October 10 to 747.1 tons on October 24.[16] The decrease in gold prices can be attributed to the strengthening of the U.S. dollar--it has reached a 2-year high against the euro. The strengthening of the dollar has led to an increase of gold sales as confidence in the dollar has begun to return.[17]
StreetTRACKS is Not the Only Way to Invest in Gold
The graph above displays three main sources of supply in the gold market: sales of gold reserves from major banks, gold that is mined directly from underground, and gold that has been separated from melted-down scrap jewelry. Not only does scrap jewelry form a considerable portion (25%) of gold supply, it is also the fastest to respond to a change in demand. Therefore, scrap gold can act to moderate fluctuations in the gold price by providing additional supply if needed.[19] The supply of scrap usually increases when gold prices rise or economic conditions worsen. Although GLD makes it easier to participate in the gold market by eliminating the need to hold gold bullion, it is still possible for individuals to invest in gold simply by buying jewelry.
Competition
StreetTRACKS is the largest gold trust on the market and its main form of competition includes other forms of gold; namely gold bullion, jewelry and electronics. Bullion is very expensive to maintain for individual investors; it is more commonly held by central banks, such as the International Monetary Fund and government banks.[20] These organizations sold an average of 527 metric tons of gold each year from 2002 to 2006.[21] Another source of gold is jewelry and electronics. Jewelry is a more accessibly route to owning gold; they can either be kept whole or melted down and turned into bullion or sold for cash.[22] Some electronic devices use gold as well, which can be separated from the rest of the device.
References
- ↑ World Gold Council-Supply.
- ↑ GLD 2007 10-K. Item 1, Page 1.
- ↑ GLD 2007 10-K. Item 1, Page 2.
- ↑ London Gold and Silver Fix.
- ↑ GLD 2007 10-K. Item 1, Page 2.
- ↑ GLD 2007 10-K. Item 6, Page 57.
- ↑ GLD 2007 10-K. Item 6, Page 61.
- ↑ GLD 2007 10-K. Item 6, Page 61.
- ↑ GLD 2007 10-K. Item 6, Page 61.
- ↑ GLD 2007 10-K. Item 6, Page 62.
- ↑ GLD 2007 10-K. Item 6, Page 61.
- ↑ "Market turmoil sparks gold rush to specialist funds." Timesonline.com.
- ↑ "Market turmoil sparks gold rush to specialist funds." Timesonline.com.
- ↑ "Gold Set for Biggest Weekly Drop in 25 Years on Dollar, Shares" Bloomberg.com:Canada.
- ↑ "Gold Set for Biggest Weekly Drop in 25 Years on Dollar, Shares" Bloomberg.com:Canada.
- ↑ "Gold Set for Biggest Weekly Drop in 25 Years on Dollar, Shares" Bloomberg.com:Canada.
- ↑ "Gold Set for Biggest Weekly Drop in 25 Years on Dollar, Shares" Bloomberg.com:Canada.
- ↑ World Gold Council-Supply.
- ↑ World Gold Council-Supply.
- ↑ World Gold Council-Supply.
- ↑ World Gold Council-Supply.
- ↑ World Gold Council-Supply.
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