Gold ETF History and the Rise of Alternative Assets

The concept of gold exchange-traded funds, or ETFs, has been around since the early 2000s. The first gold ETF, GLD, was launched in 2004 by the World Gold Council and State Street Global Advisors.

In 2004, the GLD gold ETF was listed on the New York Stock Exchange, allowing investors to buy and sell shares of gold without actually taking possession of the physical metal. This marked a significant shift in the way people invested in gold.

The GLD gold ETF quickly gained popularity, attracting over $1 billion in assets within its first year of trading. This was a major milestone for the gold ETF market, demonstrating the demand for alternative assets like gold.

The rise of gold ETFs has also led to the development of other alternative assets, such as silver and platinum ETFs. These investments offer investors a way to diversify their portfolios and hedge against market volatility.

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The World Gold Council, a trade group for global gold-mining companies, was facing financial struggles and was considering shutting down eight years before the launch of the GLD ETF.

The council created the SPDR Gold Shares, also known as the GLD ETF, which was launched in November 2004 and has since ballooned into a $56.7 billion behemoth.

The gold council spent $14 million developing the fund, and it was initially met with skepticism but has since become the fastest-growing major investment fund ever.

GLD is the world's largest private owner of bullion, with nearly 1,300 metric tons of gold stored in vaults in London.

The fund buys $30 million of gold daily, and its asset value is $56.7 billion, making it the 14th largest ETF.

Between 60% and 80% of GLD investors had never bought gold before, and the fund has added about $100 to $150 an ounce to the price of gold.

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The launch of the GLD ETF was a major milestone in the history of gold investing, and it paved the way for other gold ETFs to be launched in major markets.

It took two and a half years and $15 million to get the GLD ETF listed in the US, and the process was much smoother in London, where the GBS ETF was listed on the LSE in December 2003.

The original GBS ETF was pulled within a few months of being launched and replaced by the existing product, which shows a launch date of March 2003.

Gold has historically been a reliable store of value, outperforming other assets during times of economic uncertainty. Its price has increased significantly during periods of high inflation.

In the 1970s, gold's price surged from $35 to $850 per ounce, a 24-fold increase, while other assets like the US dollar and bonds lost value. This was largely due to the 1971 Nixon shock, which led to a devaluation of the US dollar and a subsequent increase in inflation.

Gold's performance during this period highlights its ability to maintain purchasing power and store value in the face of economic turmoil.

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The gold price has a fascinating history, and understanding it can help you make informed investment decisions. In 1980, the gold price reached its peak, but by 1995, it was in steady decline.

Investors at the time preferred to buy shares in gold miners rather than physical gold, as it gave them leverage to the gold price. This led to high price to earnings multiples for gold mining shares.

Physical gold, on the other hand, had a bad reputation due to past confiscations, sales tax, and restrictions on investments. It wasn't until the new decade that investor interest in physical gold began to pick up.

Central bank selling stopped, gold producer hedging ceased, and VAT was removed on physical gold purchases, creating a favorable environment for the gold price to rise. The gold price began to climb in February 2001, from a low of just over $250.

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Gold and Bitcoin may seem like vastly different assets, but they do share some similarities.

They both have a near fixed supply, which means that the amount of each is limited and can't be easily increased.

In fact, they are cheap to hold, making them accessible to a wide range of investors.

Gold and Bitcoin are not fiat currencies, meaning their value isn't determined by a government or central bank.

They're coming from opposite ends of the spectrum, but there will be some convergence and overlapping between the two.

The London Bullion Market Association (LBMA) sets the gold standards for the industry, ensuring that gold is refined and traded with consistency and integrity.

In 1987, the LBMA introduced the Good Delivery List, which defines the standards for gold bars to be considered good delivery, including minimum fineness and weight requirements.

The LBMA's Good Delivery List has been updated several times since its introduction, with the most recent update occurring in 2015.

The LBMA also sets standards for the refining and manufacturing of gold, requiring that gold be refined to a minimum purity of 99.5% and that it meet specific weight and diameter requirements.

The LBMA's gold standards have been adopted by the global gold market, providing a common framework for the industry to operate within.

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