Gold ETFs just off all-time highs, local and offshore

Simon BrownETF Blog, Latest

Kruger Rand (Gold)

Kruger Rand (Gold)

Gold just off all-time highs so we have updated the details below.

Well here we are, gold is above $2,100 and just off the all-time highs. This as inflation has been moderating, but investors seem to still want insurance and for many – that’s gold.

We’re not convinced by the intrinsic value argument, but so many others are that it creates a self-fulfilling prophecy. In times of crisis—a pandemic, say—fearful investors flock to gold. The increased demand leads to a price increase, which attracts those who fear missing out on all things, further increasing the price. During times of crisis, few investments are as exciting as gold and stubborn inflation with low growth could be just another crisis.

Unfortunately buying physical gold comes with many challenges – not least of which is storage. If you aren’t keen to keep gold under your mattress (we certainly wouldn’t advise it), but still want a touch of Wild West in your portfolio, the Absa NewGold ETF (JSE code: GLD*), the 1nvest Gold ETF (JSE code: ETFGLD) or the SPDR Gold Shares ETF (NYSE code: GLD) is worth consideration.

For each local ETF unit created the issuer buys 1/100th of a fine troy ounce of gold whereas the SPDR buys 1/10th of a fine troy ounce. The physical gold is stored by the ETF issuer, leaving your mattress free to serve its intended purpose. 

Since these ETFs track the gold price, it stands to reason its performance would reflect that of the gold price. However, with the Absa and 1nvest ETFs the performance of the rand against the dollar will also affect the performance of this ETF, with poorer performance when the rand is stronger against the dollar and vice versa. Exposure to both the gold price and currency fluctuations makes for a bumpy ride, which means this ETF is not for everyone. 

The SPDR ETF trades in US$ on the NYSE and so tracks the gold price in sync with no currency impact as you’ve already offshored your money into US$.

Since they only invest in gold, it offers no diversification. It is therefore not available within a tax-free investment account. Your exposure to the price movement of a single commodity introduces a great degree of concentration risk, which is why this ETF should not form part of your core strategy. A speculative holding of 5% of your entire portfolio should offer enough excitement to feel like you’re actually part of something without making your portfolio seasick. 

Much as gold bugs love to dream about a return to the gold standard, gold is a single, volatile commodity. As long as you don’t expect it to be something it’s not, you might have fun with it.

Interestingly central bankers have been net buyers of gold over the last year, something we haven’t seen in ages. I spoke with Krishan Gopaul: World Gold Council about this earlier in the month.

The two tables below show the performance and other details of the two ETFs. Interestingly Absa listed theirs just over a week before the US one listed. Further, the two JSE ETFs have done much better, but that’s all thanks to a weaker Rand.

Simon Brown

ETF name NewGold ETF  1nvest Gold ETF SPDR Gold Shares
ETF issuer Absa 1nvest State Street Global Advisors
Issue date 1 November 2004 7 April 2014 18 November 2004
Total investment cost 0.3% 0.25% 0.4%
ETF Benchmark Gold Spot Price in Rands Gold Spot Price in Rands Gold Spot Price
Tax-free savings account No investment allowed No investment allowed No investment allowed
ETF major holdings Physical gold Physical gold Physical gold
Market cap R17.6bn R990million $55.4billion
Performance 1 year +18.9% +23.3% +13.6%
Performance 3 year +52.5% +56.6 +20.2%
Performance 5 years +1116.6% +116.5% +60.8%
Performance 10 years +168.0% +182.8% (since listing) +50.4%
Dividend yield No dividend No dividend No dividend

ETF blog logoAt Just One Lap, we are big fans of passive investment using ETFs. In this weekly blog, we discuss ETFs on the local market and the factors you need to consider when choosing an ETF. If you have wondered how one ETF differs from another, this is where you can find out. We explain which index each ETF tracks, what type of portfolio could benefit from holding each ETF, and how the costs will affect your bottom line.

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