LONDON - In the 19th century California gold rush, the surest way to a fortune, according to Mark Twain, was to be in the"pick and shovel business."Exchange-traded funds backed by physical gold and silver accumulated more than US$50 billion of bullion this year. ETFs now hold more gold than every central bank with the exception of the Federal Reserve.
"At these times, it's a very good business to be in," said George Milling-Stanley, chief gold strategist at State Street Global Advisors, the marketing agent for the largest gold ETF, SPDR Gold Shares or GLD.ETFs typically charge fees as a percentage of the value of their assets. With investors adding to their holdings as spot gold soared to a record above US$2,075 an ounce this month, earnings have benefited from a double boost.
GLD is delivering some US$300 million of fees a year at current holdings and prices. That's good news for State Street and also for the World Gold Council - a mining industry-backed group that helped create the ETF - as both take a cut of those fees. Vaulting typically accounts for roughly 10 per cent of the US$1.1 billion to US$1.2 billion a year that banks earn from precious metals, according to Amrit Shahani, research director at Coalition Development.VAULTING STRAINS The surge in demand has strained the system. GLD's quarterly reports reveal that beginning in April, it owned some gold that was not held at HSBC's vault, but instead at the Bank of England, which trails only the Fed in its store of bullion.
Source: News Formal (newsformal.com)
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