Gold-linked exchange-traded products have hit the skids this year due to falling gold prices, causing investors to jump ship. And into that maelstrom comes Wednesday’s launch of the Perth Mint Physical Gold ETF (AAAU), which is billed as the first gold ETF/ETP that lets investors exchange their shares for physical gold.
Investors who cash out of AAAU have the option to exchange their shares for delivery of physical gold in the form of bullion bars and coins from the Perth Mint, Australia’s largest precious metals refining, minting and depository business. The gold can be delivered to an approved location of the investor’s choice.
According to its website, the mint annually distributes roughly $18 billion (about $US13 billion) worth of pure gold, silver and platinum bullion bars and coins to investors in more than 100 countries.
The AAAU fund, which trades on the NYSE Arca exchange, is backed by physical gold with a purity of at least 99.5 percent and is secured within the mint’s network of vaults. The underlying gold is guaranteed by the state government of Western Australia, which happens to be the owner of the Perth Mint. As such, the fund is touted as the first of its kind where the underlying physical gold is guaranteed by a sovereign entity.
The fund’s trustee is The Bank of New York Mellon, and its administrative sponsor is Exchange Traded Concepts, a private-label ETF advisor.
AAAU hits the market at a tough time for the yellow metal. Gold prices are down 7.3 percent in 2018, according to the World Gold Council. Gold is traditionally seen as an inflation hedge and as ballast during volatile equity markets. But both inflation and volatility have been reasonably kept in check as of late, which takes the shine off of gold.
As noted by the World Gold Council, central banks around the globe bought 7 percent less gold in this year’s second quarter versus the year-earlier period, and overall demand for gold bars and coins was virtually unchanged. While demand for gold in the tech sector rose somewhat, total supply rose 3 percent during the quarter.
Given the poor backdrop for gold prices, U.S.-listed gold ETPs have had a lousy year in terms of performance. Share prices among the five largest gold ETPs are all down at least 8 percent, according to Morningstar.
And asset outflows have also been a problem, led by the granddaddy of gold ETPs, the SPDR Gold Shares (GLD), which has seen outflows of $1.35 billion so far in the third quarter and $2.02 billion year-to-date, according to XTF.com.
Meanwhile, the GraniteShares Gold Trust (BAR) has experienced inflows of $30.6 million in the third quarter and $285.6 million year-to-date.
What likely accounts for that difference? In a word, price. GLD’s expense ratio is 0.40 percent versus 0.20 percent for BAR.
The Perth Mint Physical Gold ETF’s management fee of 0.18 percent is an investor-friendly price point. That, and its ability to let investors trade their ETF shares for physical gold, could make AAAU a significant player among gold ETPs. That is, when investors catch gold fever again.