Gold exchange-traded products are exchange-traded funds
(ETFs), closed-end funds (CEFs) and exchange-traded notes (ETNs) that aim to
track the price of gold. Gold exchange-traded products are traded on the major
stock exchanges including Zurich, Mumbai, London, Paris and New York. As of 25
June 2010, physically backed funds held 2,062.6 tonnes of vaulted gold in total
for private and institutional investors. Each gold ETF, ETN, and CEF has a
different structure outlined in its prospectus. Some such instruments do not
necessarily hold physical gold. For example, gold ETNs generally track the
price of gold using derivatives.
The first gold exchange-traded product was Central Fund
of Canada, a closed-end fund founded in 1961. It later amended its articles of
incorporation in 1983 to provide investors with an exchange-tradable product
for ownership of gold and silver bullion. It has been listed on the Toronto
Stock Exchange since 1966 and the AMEX since 1986.
The idea of a gold exchange-traded fund was first
conceptualized by Benchmark Asset Management Company Private Ltd in India when
they filed a proposal with the SEBI in May 2002. However it did not receive
regulatory approval at first and was only launched later in March 2007. The
first gold ETF actually launched was Gold Bullion Securities, which listed 28
March 2003 on the Australian Securities Exchange. Graham Tuckwell, the founder
and major shareholder of ETF Securities, was behind the launch of this fund and
enlisted N.M. Rothschild & Sons (Australia) Ltd, Citibank and Deutsche Bank
as market makers on the ASX.
Typically a commission of 0.4% is charged for trading in
gold ETFs and an annual storage fee is charged. U.S. based transactions are a
notable exception, where most brokers charge only a small fraction of this
commission rate. The annual expenses of the fund such as storage, insurance,
and management fees are charged by selling a small amount of gold represented
by each share, so the amount of gold in each share will gradually decline over
time. All gold ETFs in the United States have an annual expense ratio between
.25% and .4%.[citation needed] In some countries, gold ETFs represent a way to
avoid the sales tax or the VAT which would apply to physical gold coins and
bars.
In the United States, sales of a gold ETF are treated as
sales of the underlying commodity and thus are taxed at the 28% capital gains
rate for collectibles, rather than the rates applied to equity securities.