SPDR Gold Trust ETF (GLD) revolutionized gold trading when
it launched ten years ago. It paved the way for all other
precious metals exchange-traded funds and their leveraged
varieties. Before GLD debuted, exposure to gold came in bars,
coins, certificates, savings plans or shares in gold-mining
ETF put precious metals investing into the mainstream and
eliminated headaches from insurance, shipping and storage
The ETF amassed more than $1 billion in assets in its first
three days, starting November 18, 2004, which sealed its place
in history as the fastest an ETF has ever attracted that level
of assets. Within 15 months, it had raked in $5 billion, and
within three years, it had $10 billion.
It changed the gold market rather dramatically,
says Dennis Gartman, the commodities analyst and newsletter
writer who helped create a number of gold and currency ETFs:
AdvisorShares Gartman Gold/Yen ETF (GYEN), Gartman Gold/British
Pound ETF (GGBP) and Gartman Gold/Euro ETF (GEUR). It
broadened the market, he says. It made it far more
transparent. It made it easier for the public to get in and to
As the largest precious metals ETF, GLD accounts for 80
percent of assets invested in physically backed gold ETFs in
the U.S. and half of gold ETFs globally, according to the World
Gold Council. Near the height of the gold market in 2011, GLD
briefly overtook the SPDR S&P 500 ETF (SPY) as the
worlds largest ETF, when it had $76.7 billion in assets.
It has since fallen in the rankings to the ninth-largest
U.S.-traded ETF, with $28 billion in assets.
With 723 metric tons, GLD owns more of the yellow metal than
the European Central Bank and India combined. But thats
just a nugget compared with the 1,200 tons Chinese buyers
accumulated in 2013 and a mere flake compared with the global
jewelry market, which is estimated at 84,300 tons, and the
industrial market at 20,800 tons.
GLD, with about 1 million shareholders, can be found in
risk-averse pension portfolios and high-rolling hedge funds
alike. The Teacher Retirement System of Texas owns $52 million
worth. Commonwealth of Pennsylvania Public School
Employees Retirement System has $42 million. Hedge fund
Paulson & Co., famed for correctly betting on the housing
crash, holds 10.2 million shares valued at $1.17 billion.
GLD probably boosted bullion prices and increased market
volatility by making gold a legitimate asset class held in
pension funds and retirement accounts, says Thomas Winmill, a
specialist in precious metals and natural resources investing
as portfolio manager of the Midas Fund (MIDSX), with $15
million in assets under management.
Pools of capital that would not otherwise consider
using gold in a portfolio now do, says Winmill.
Its a mixed blessing to have. There are greater
numbers of buyers, but there could also be greater number of
sellers when theres a panic.
However, Terry Sacka, chief strategist of Cornerstone Asset
Metals, believes golds price would be much higher without
the advent of gold ETFs, which offer a means of paper trading a
We believe the current derivative naked-short position
in ETF and futures markets for gold to be in the area of 90
ounces of paper sold for every one real ounce in the registered
vaults, Sacka writes in an e-mail. Mind you, most
deep physical professionals are skeptical the real gold is
there to back up the ETF, as it is claimed to be.
Nevertheless GLD represents a hard, tangible asset with
intrinsic value, unlike currencies and stocks, which on
occasion have become worthless. Central banks cannot create
more gold by firing up the printing presses, as they do fiat
Gold is a store of value because gold will never go to
zero, Miguel Perez-Santalla, sales and marketing manager
of Heraeus Metals New York, writes in an e-mail. All
other financial instruments can. It is not a classical
investment; it is more of an insurance policy.
Whereas those distrustful of paper currencies see it as a
currency thats been used for centuries, the Internal
Revenue Service treats GLD as a collectible.
Gold offers asset diversification in a portfolio as it moves
independently from stocks and bonds. Over the past ten years,
it has a correlation ratio of 0.09 with SPY and iShares 20-Year
Treasury Bond ETF (TLT).
GLD has returned 9.8 percent annualized, versus 7.9 percent
for SPY, over the past ten years (through October 19). However,
it has severely lagged the stock market over the past five-,
three- and one-year periods. The goldbugs would contend that
its long overdue to outperform simply because of mean