The Perth Mint’s foray into the world’s first exchange-traded fund (ETF) with sovereign backed gold has been exquisitely timed.
As the first units began to trade on the New York Stock Exchange, gold continued to trade at less than US$1200 an ounce, largely on the back of the strengthening US dollar.
It is an interesting time to launch a gold vehicle that doesn’t have some of the faults that have plagued “paper gold” instruments that have traded on exchanges around the world.
First government backed gold investment
For one thing, the West Australian government – which owns the Perth Mint – is guaranteeing the gold in the investment, which is also backed by allocated gold held in the vaults in the Perth Mint.
That should add a significant level of comfort to some investors, some of whom have long been sceptical about “paper gold” which is said to be stored in London vaults but on an unallocated basis.
Sceptics believe some paper gold is “owned” several times over due to the wide range of gold products that are sold based on what is in the vault.
ETF can be swapped for gold coins and bullion
Adding to that level of comfort, investors in the Perth Mint Physical Gold ETF, listed as AAAU, can actually be redeemed for physical gold through a selection of bullion bars and coins offered by the Perth Mint that can be delivered to your door.
Each AAAU share is equal to 1/100th of an ounce of gold, so if gold is trading at US$1200 an ounce, it should be trading for US$12.
Another box that the Perth Mint has ticked is ensuring that fees on the gold ETF are kept low at just 18 basis points, or 0.18 percent of the value of the investment.
Fees at just 0.18 per cent
While that may seem a little high to some ETF investors, it should be remembered that gold is an unusual investment in that it yields nothing and actually costs money to hold in storage fees and security.
The launch came days after the gold price fell to just below the US$1200 an ounce mark for the first time since January 2017 as the greenback continued to strengthen.
Gold still a refuge
Perth Mint Chief Executive Richard Hayes said gold was becoming even more relevant as a store of wealth given sovereign debt issues and the level of money printing, or quantitative easing, that had gone on in the Unites States and Europe since the global financial crisis.
“Money is becoming more and more debased as time goes by and ultimately precious metals are a great way to store a portion of wealth,” he said.
Mr Hayes said to reduce tracking error even further, the management fee will be charged in ounces at the time of production rather than in dollars after the fee is converted.
That should ensure that the price of the gold ETF stays very closely linked to the actual price of gold, something that hasn’t always been the case with other forms of paper gold.
The Perth Mint ETF continues a trend for lower cost gold products started by the World Gold Council, which has also recently launched a low-cost fund with a 0.18 per cent management fee. Perth Mint launches first gold-backed ETF on NYSE.
Mr Hayes said the Perth Mint has other ETF products planned, but he would not give any further details as yet.
The Mint has also been working on a gold linked cryptocurrency.