Today, November 18, is the 10-year anniversary of the launch of the SPDR Gold Shares ETF (“GLD”), the first physically-backed gold ETF to launch in the US. The ETF was an instant success, gathering $1 billion in the first three days of trading. It became the largest ETF in the world for one day in 2013, and it is currently the largest gold ETF and the largest physical gold fund.
We spoke with Will Rhind, the new CEO of World Gold Trust Services, a subsidiary of the World Gold Council, on the anniversary of the launch and what is ahead for GLD and for WGTS. World Gold Trust sponsors the GLD, whose shares are traded on the New York Stock Exchange, as well as on exchanges in Singapore, Tokyo, Hong Kong and Mexico.
Q: I read an article recently that said the SPDR Gold Shares ETF is not really an ETF – that it is a grantor trust. Is that true?
A: It is an ETF. Officially it’s a grantor trust, but that’s just the legal structure. ETF is the generic term that describes an open ended fund that can be redeemed in kind and is listed on a stock exchange. That applies to any fund regardless of whether it is part of the 43 Act or the 33 Act.
Q: Who invests in the GLD and why do they invest in it rather than owning or speculating in gold some other way?
A: Because of its size it has a huge number of underlying investments – about 750,000 to a million investors. That spans a huge spectrum from individual investors to the largest sophisticated hedge funds and institutions.
GLD is really physical gold in equity form. Enabling you to hold gold in your portfolio is the key benefit and the reason it’s so popular. Before it came along people could buy coins and physical bars, but there are costs associated with those, and you must store them yourself. It’s not easy to buy and sell physical gold. So the ETF has efficiencies and reduces transaction costs.
People also invest in gold through the futures markets, which gives you pure exposure to the price. But most investors don’t actively engage in the futures market. Owning GLD is no different to owning shares of IBM or another company. Its a very easy thing to do.
Q: Can the GLD be converted to physical gold?
A: Converting to physical gold is not really what it’s designed for. It’s not for individual investors to take delivery of physical gold. It was built to provide efficiencies for investors, primarily large institutions. The way it works is you can only create or redeem blocks of 100,000 shares or more. That lends the ETF only to institutional investors.
Q: GLD has outperformed the S&P 500 Index, but has a higher tax rate than stock or bond ETFs. Is the higher tax rate insignificant?
A: Precious metals are subject to a “collectible tax” meaning that if you own shares for one year or more you pay the collectible tax rate, which is higher than the capital gains rate. For periods shorter than a year you pay the same rate as any other stock or bond.
Q: I read two stories that appeared to possibly contradict each other. One said that the GLD holds less than 1 percent of the gold in the world, the other said that it holds more metal than most of the world’s central banks (all but eight). Are both of these true?
A: For the second question, the GLD holds roughly $27 billion. It does own as much as or more gold than many of the world’s central banks. The first question is a question of pure tonnage. The number of tons of gold in the GLD is about 1 percent of all the gold in existence (all the gold that has ever been mined).
Q: What are the challenges you face in your CEO role over the next few years as far as promoting and maintaining the GLD?
A: One of my main tasks is to create the next generation of gold products and GLD strategy for the next 10 years. There are three major prongs in this strategy: one, design new products to capture the imagination of the next generation of gold investors; two, expand into new sectors or segments of existing markets as well as international markets; and three, ramp up our research capabilities to broaden our message for why people should invest in GLD.
Q: What sectors are you trying to appeal to?
A: In the US, we’ll be actively engaging with the institutional market – pensions, endowments — we plan to engage with them a lot more actively over the next few years.
Q: What about other regions?
A: GLD is cross listed into Mexico, Hong Kong, Singapore, and Japan. We’re looking to expand our presence in those markets and to develop other new markets for gold as well.
Q: Any plans to get into mainland China?
A: Well, we are in Hong Kong, and China is a big focus for the World Gold Council and a hugely important market for gold, so we would certainly look to explore opportunities with key partners in China.
Q: What does the WGC do to educate people about the SPDR Gold Trust ETF and/or to promote it to people who may not be “gold bugs”?
A: The main message we try to give investors is that gold can be thought of as a strategic holding in an invest portfolio. Everyone should own between 2 and 10 percent in a diversified portfolio.
Q: According to a recent Bloomberg story, assets held by the GLD are down to $27 billion from $76.7 billion 3 years ago – attributed to low inflation, a stronger dollar and the stock market rally. Do you agree that those factors are affecting the GLD’s assets and if so, do you expect a change in the coming years?
A: When GLD launched it was actually in circumstances that in some respects were not hugely different from today’s. It was the beginning of a 10-year bull market, but at the time GLD launched it was the bottom of a previous bear market cycle for gold, when gold was at about $250 an ounce.
It was on the back of the bust in the equity market and the tech bubble, and then there was a recession afterwards. So you could argue that the launch was not into a strong gold market but was sewing the seeds of what would become a bull market.
In comparison to now, gold prices have declined over the last couple of years and the whole commodity market has declined also. What’s happened in gold in the last two years is that we’ve seen a lot of gold exit the ETFs on the back of investors re-allocating capital from gold into equities as the equity market climbs to all time highs. At same time we’ve seen that gold exit the ETF and move across the world into the hands of consumers in Asia, India and China as they look to take advantage of lower prices in buying gold.