London Gold price up 3.8% in 2012 year-to-date

• As of 11 January, the price of gold, as gauged by the USD London Gold fixing price has risen 3.8% after the PM fixing price posted a gain of 8.9% in 2011.

• SGX provides a market for physically backed Exchange Traded Fund on Gold.  This is known as the  SPDR® GOLD SHARES ETF (GLD SP) which tracks the USD London Gold PM fixing price.

• GLD SP had the most active turnover of all ETFs listed on the SGX in 2011. GLD SP ETF 2011 total turnover was up 170% from 2010.

• Lower minimum notional value relative to other Gold market mediums make GLD SP accessible to most investors.  The minimum investment of 10 units or 1 ounce, at  a GLD SP price of US$155.0, is US$1550.00 not including transaction fees.

• GLD SP is a Specified Investment Product. SGX also lists two Gold mining stocks, LionGold Corp Ltd. and CNMC Goldmine Holdings Ltd.

As of 11 January 2012, the price of gold, as gauged by the London Gold Market Fixing Ltd Fixing price had firmed 3.8% year to date after the PM fixing price posted a gain of 8.9% in 2011. The London Gold Market Fixing Ltd Fixing price is printed twice a day, at 10.30 am and 3.00 pm London local time.   

The USD London Gold Market PM Fixing price on 11 January 2012 was US$1634.5, up 3.8% from 30 December 2011 when the USD London Gold Market AM Fixing price was printed at US$1574.5. Note there was no PM fixing on 30th December 2011.

As the chart below illustrates, the London Gold Market PM Fixing price varied across 2H11, reached a high of US$1,895 in September 2011, then subsequently declined 19.2% to US$1,531 in December 2011. The total turnover in the SPDR® GOLD SHARES (GLD SP) jumped to more than US$2.4bn in 2011. This active turnover placed GLD SP at the top of the 2011 turnover rankings for all 90 Exchange Traded Funds (ETFs) listed on the SGX.

Lower minimum notional value relative to other Gold market mediums make GLD SP accessible to most investors. The minimum investment, on a price of US$155.0 is 10 units or 1 ounce at US$1,550, not including transaction fees.

If the price of gold had fallen US$100, from US$1,550 per ounce to US$1,450 per ounce, the loss on the minimum investment of 1 ounce of GLD SP would also be expected to be $100. If the price of gold rose US$100, from US$1,550 per ounce to US$1,650 per ounce, the return on the minimum investment of 1 ounce in GLD SP would also be expected to be $100. ETFs do have tracking errors and expense ratios to take into account, nonetheless these examples are a contrast to the bigger potential loss and returns associated with the leveraged markets for Gold.

Net Asset Value (NAV) represents the per share value of the ETF. It is calculated by taking the total assets of the ETF, less liabilities, then dividing by the number of ETF shares outstanding.

GLD SP is a physically backed Exchange Traded Fund. On its GLD FAQ page, State Street Global Markets maintain that the NAV of SPDR Gold Shares is determined each day that the NYSE Arca platform is open for regular trading. State Street Global Markets further note that “the NAV of the Trust is calculated based on the total ounces of gold owned by the Trust valued at the Gold London PM fix of that day plus any cash held by the SPDR Gold Shares less the daily accrued expenses of the annual expense ratio of 0.40%. The NAV of each SPDR Gold Shares is the proportional interest in the NAV of the SPDR Gold Shares based upon the total number of shares outstanding.”

In a recent thematic report released by the World Gold Council (WGC) titled “Gold as a strategic asset for European investors”, the WGC examined the case for gold as a long term or strategic asset allocation for European investors. The report stated that consensus exists that ‘from a longer term perspective, gold is a useful hedge against inflation and a long term store of financial value’.

Unlike the requisite for investing in gold bars and coins, the Product Highlight Sheet states that GLD SP offers investors the opportunity to invest in the gold market through an investment in securities whilst the logistics of storing and insuring the gold are dealt with by the custodian (HSBC Bank USA) with the related expenses built into the price of the shares. Further information can be found at www.spdrgoldshares.com.

More on the structure and risks associated with trading SGX ETFs can be found here.

SGX also offers two stocks involved in gold mining. With market capitalization of S$640million, LionGold Corp Ltd. is a mineral exploration and production company. The Company has acquired a new concession, the Kashmir Project (Dunkwa Area) in Ghana where it intends to explore for gold. Another stock, which had its IPO in October last year, is CNMC Goldmine Holdings Ltd.  The Company conducts exploring activities and processes mined ore into gold and operates in the Sokor Gold Zone in Malaysia. It had a market capitalization of S$194 million as of 11 January 2012 . In 2011, of LionGold Corp Ltd. gained 19.2% in 2011 and that of CNMC Goldmine rose 20% since its IPO.

Specified Investment Products

As part of the Monetary Authority of Singapore’s (MAS) initiative to introduce stronger measures and enhance requirements to further safeguard the interests of individual investors, Exchange Traded Funds have been categorised as Specified Investment Products (SIPs).

SGX SIPs have structures, features and risks that may be more complex in nature. The MAS now requires broking firms to ascertain whether an individual investor has the relevant knowledge and experience to understand the risks and features of SIPs before allowing the individual to open an account to trade SIPs listed on both securities and derivatives markets.

SGX has introduced two online initiatives, a Customer Account Review Module and an Online Education programme, to support individual investors in their understanding and trading of SIPs listed on SGX. Click here to access these initiatives.

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