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.