Gold

Claymore Gold Bullion Trust (CGL.UN)

May 26, 2009

16 comments

I have no views as to where it [gold] will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola will be making money, and I think Wells Fargo will be making a lot of money and there will be a lot–and it’s a lot–it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that. The idea of digging something up out of the ground, you know, in South Africa or someplace and then transporting it to the United States and putting into the ground, you know, in the Federal Reserve of New York, does not strike me as a terrific asset

— Warren Buffett on CNBC’s Squawk Box on March 9, 2009

Claymore has filed a final prospectus for a new ETF that aims to track the price of gold bullion in US dollars. The ETF achieves this by purchasing and holding physical gold bullion and hedging the fund’s USD currency value back to Canadian dollars. The ETF will trade on the TSX under the ticker symbol CGL.UN. The MER of the fund is capped at 0.50%. However, according to the prospectus, the expense cap excludes “the implementation and on-going operation of an independent review committee under National Instrument 81-107 – Independent Review Committee for Investment Funds (“NI 81-107”), brokerage expenses and commissions, income taxes and withholding taxes, gold settlement fees and any extraordinary expenses.” If past experience with hedging is any indication, hedging is likely to add another 1% in expenses, bringing the total expenses in the range of 1.5%.

As I explained in this earlier post, I’m not sold on the rationale for holding gold in a portfolio. To the extent that an investor wants to add gold bullion to their portfolio and doesn’t care about currency fluctuations, cheaper options such as the SPDR Gold Shares (GLD) (MER of 0.40%) or Central Fund of Canada (which holds silver in addition to gold, has incurred expenses of 0.30% and trades under CEF.A on the TSX) already exist. Investors who would simply like some disaster insurance might simply want to purchase gold bullion such as maple leaf coins or gold bars directly from a dealer and hold them in physical form.

Note: The Personal Finance Clinic has attracted some interesting questions but there may be room for some more. The Clinic closes on May 31, 2009.

Update: The following sentence in the original post was incorrect: “The management fee for the fund is 0.50% and the operating expense is capped at 0.50% for a MER of about 1%”. Som Seif pointed out that the MER of the fund is capped at 0.50% and the post has been edited to reflect the correct information.

Gold in Your Portfolio

November 14, 2007

17 comments

The speculative public is incorrigible. It will buy anything, at any price, if there seems to be some “action” in progress.
– Benjamin Graham, The Intelligent Investor

Jonathan Chevreau has written a couple of columns (here and here) and blog posts (here and here) on the place (or not) that gold has in a portfolio. As gold recently crossed the $800 (US) per ounce threshold, gold bugs are coming out of the woodwork saying “I told you so!” and putting a “target” of as much as $2,500 per ounce.

Gold enthusiasts (including a self-serving recommendation from the Millennium BullionFund that gold should make up 50% of a portfolio) correctly point out that gold is poorly correlated with other asset classes. True enough but correlation isn’t the only reason to add an asset to a portfolio. More importantly, every asset class should provide an expected positive return by holding it over the long-term. Gold fails this test miserably. It provides no ongoing income in the form of dividends or interest and in fact, costs money to store and insure. The best that can be said about gold’s price over the long-term is that it can be expected to keep pace with inflation.

Fortunately, there are some sane voices in the growing chorus for buying gold. Mr. Chevreau quotes financial advisor Fred Kirby who points out that real return bonds and REITs share some of the correlation characteristics of gold while providing an expected positive real return over the long-term. Also, if you must have bullion in your portfolio, there are better ways that buying the Millennium BullionFund. There is no ETF that tracks the price of platinum that I know of but streetTRACKS Gold Shares ETF (GLD) tracks the price of gold for a MER of 0.40% and iShares Silver Trust (SLV) tracks the price of silver for a MER of 0.50%. Note that both GLD and SLV trade at a discount or premium to the price of the underlying commodity. The precious metal ETFs charge significantly less fees than BullionFund’s MER of 2.25% plus a front-end load of 5%.

Buy Gold! Buy Gold!

May 14, 2006

7 comments

A full-page ad for gold coins is often featured in The National Post these days with the headline “GOLD BLASTS PAST $644/oz! BUY NOW – EXPERTS NOW PREDICT $2,000 – $3,000 per oz”. It is quite true that gold has been on a tear recently reaching multi-decade highs. However, gold is a very poor investment: it costs a lot to buy and sell, it costs money to store, it pays no interest or dividends and over the long-term, it keeps pace with inflation and offers no growth. While gold does offer some diversification benefits as it has negative correlation with other asset classes, it is still a poor bet for most long-term investors.