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Investor’s Guide to the Gold Market and Gold ETFs | The Key Characteristics of Gold ETCs (Part 3/5) | RMAU

 

Simplicity

Gold ETFs are designed to close track the price of gold. An investor buying shares in a gold-backed ETF are essentially buying a portion of the physical gold that the fund holds. These products offer investors the convenience of buying gold on a stock exchange as they would a regular stock.

Gold ETFs have made it easier for investors to gain exposure to gold and have democratised the market as retail investors can access gold in the same low-cost way as large institutional investors.

Cost Reduction

Gold ETFs often have lower management fees than actively managed commodity funds and have lower minimum investment thresholds than vaulted gold. Gold backed ETC management fees typically include the vaulting costs for physical gold. Investors buying physical gold bars or coins will bear the expense of storage directly, or via third parties.

Growth of Gold ETFs (1):

Liquidity

Gold is very liquid and can easily be converted to cash. Investors who hold a gold ETF are participating in a broad and deep market that collectively trades ~£99 billion per day, rivaling many stocks, bonds and currencies.

Standardisation

Gold backed ETFs generally hold a standard form of gold bullion in troy ounces, grams or kilograms. Some ETFs only hold ‘London Good Delivery’ bars which meet stringent quality standards, including weight, fineness and dimensions. These bars are typically stored in vaults at a custodian or bank with the requisite security measures and auditing processes.

Transparency & Efficiency

Gold backed ETFs provide transparency and security through an approved custodian (normally a bullion bank or dealer) with experience in managing gold accounts. Gold-backed ETFs must also meet strict regulatory requirements, similar to publicly traded equities and publish intra-day prices and standard corporate filings. Some will also provide a list of the serial numbers of the specific gold bars held.

 

“Because gold is honest money, it’s disliked by honest men” - 

Senator Ron Paul

 

Physical Delivery: RMAU

All gold ETFs should allow 100% redemption of gold holdings. This guarantees that the product is fully backed by physical gold. Redemption should be permitted either directly, of through an authorised participant (AP). RMAU investors can submit a redemption request for all, or part of their RMAU holdings, to be delivered in physical gold, or sell on-exchange for cash.

HANetf is able to process physical redemption because RMAU is 100% physically backed by gold. This process is clearly explained in the Prospectus.

The Risks

Of course, with all investments the value of an ETF/ETC can go down as well as up.

Your capital is at risk and you may not get back the amount originally invested. Any decision to invest should be based on the information contained in the relevant prospectus. Please obtain independent advice before making a decision.

ETC securities are structured as debt securities and not as shares (equity). ETC securities trade on exchanges like securities and are bought and sold at market prices which may be different to the net asset value of the ETC securities.

View part four of the Investor’s Guide to the Gold Market and Gold ETCs and find out about 'A New Gold Standard'.

Visit The Royal Mint Physical Gold ETC Fund Page to learn more about RMAU.

Download the full whitepaper "Investor's Guide to the Gold Market and Gold ETC Market" here. 

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