The other way to go gold

Of all the precious metals, gold has been the most popular investment choice for hundreds of years. Albeit one not immune to volatility and large price swings - which we've been reminded of lately.

Historically investors have bought gold in a number of ways: physical gold in the form of bars or coins, gold futures contracts, mining stocks, or shares in a mutual fund with an actively managed precious-metal strategy. But that's all changing.

" The emergence of ETFs and their popularity as an alternative investment vehicle has opened up new opportunities."
Eddie Listorti, Global Co-Head of FICC FC | ANZ

The emergence of Exchange Traded Funds (ETFs) and their popularity as an alternative investment vehicle for both institutional and individual investors has opened new opportunities to access a variety of asset classes - including gold.

A physical gold ETF consists of only one asset: gold bullion. Gold ETFs give investors the opportunity to gain exposure to the performance of gold without all the risks involved in buying or selling gold stock or the costs and insurance concerns of holding physical gold in a vault.

Like any investment vehicle, there are also risks associated with an investment in gold ETFs – such as the performance of the underlying asset (in this case the gold market). However, it is worth pointing out gold ETFs are isolated from credit risk because they are backed by gold and not the creditworthiness of the bank.

Nevertheless, investors should obtain tax advice before making an investment in the product and read the product disclosure statement to ensure the product is right for them.

Click image to zoom Tap image to zoom

Source: Bloomberg, ETF Securities


One of the most remarkable aspects of gold ETFs is their rate of growth and investor interest. In March 2003, the World Gold Council helped launch the world's first-ever gold ETF on the Australian Stock Exchange.

SPDR Gold Shares (ticker “GLD") was the first physically backed gold-ETF launched in the US in November 2004. Developed and sponsored by World Gold Trust Services LLC — a wholly owned subsidiary of the World Gold Council — GLD was listed on the NYSE in November 2004.

GLD reached more than $US1 billion in assets under management within its first three trading days. Within a year from its launch, the fund had tripled these assets.

Most major exchanges now list gold ETFs, showing the global interest in this vehicle. Perhaps the most interesting comparison comes when their liquidity is compared to some of the most liquid and actively traded equities.

The average daily traded value, as measured by trading volume of GLD alone (the most liquid gold ETF), is comparable to top technology and financial companies, and to broad index equity ETFs. So it is very easy for investors to redeem their gold ETF when they decide to do so.


Gold, compared with other commodities, has traditionally been seen as a safe haven investment, to protect against the ups and downs of the equities market, and can be stored in a vault at a low cost without deteriorating.

ANZ currently distributes around 15 per cent of the world's primary gold production and is an established bullion bank in Asia Pacific. We have our own precious metals vault which can hold 50 tonnes of bullions located at Singapore Freeport within a high-security area of Singapore Changi Airport.

Click image to zoom Tap image to zoom

Source: Bloomberg; returns in AUD

At ANZ, we believe Asian gold demand will build steadily as its consumption patterns begin to more closely resemble those of the West.

A growing middle class will buy more jewellery, a larger body of professional money managers will drive investment demand and regional central banks, whose current holdings lag developed economies, will purchase more gold to provide confidence in newly floated currencies.

These factors will, in ANZ's view, support a long-term and significant increase in the gold price.

Are our predictions correct? Only the future will tell for sure. But considering the benefits gold ETFs hold and looking at the extraordinary growth in popularity of the Australian ETF market, investment portfolios will continue to look toward gold.

As Warren Buffett, the most successful investor of the 20th century, once said: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble". Could gold ETFs be that bucket?

Eddie Listorti is global Co-Head of FICC FC at ANZ.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

editor's picks

09 Jun 2015

The rise and rise of the ETF

Danny Laidler | Former Head of ETFS & Distribution, ANZ

Australian investors are very fond of investing in domestic equity markets with overseas investments seen as expensive, confusing or simply too hard to access.

23 Jul 2015

Investing with an impact

Martin Foo | Research Officer, Australian Centre for Financial Studies

In our series on philanthropy and the science of giving, BlueNotes presents prominent figures and representatives of organisations speaking about giving and its social impact.