Next Up: Gold ETF With Vaults In Asia

by on August 4, 2010 | Updated August 5, 2010 | ETFs Mentioned:

Over the past few years, the number of ETFs has grown exponentially; the industry now covers nearly every corner of the investable universe. The pace of innovation has been particularly impressive in the commodity space, which has seen interest surge as investors have become increasingly concerned over the health of the global economy and the ability of governments to pay back ballooning debt loads. Investors have especially flocked to gold ETFs, some of which are among the largest and most popular funds on the market.

One of the newest issuers in the space is ETF Securities; the London-based company is a giant in the European ETF space but a relative newcomer in the U.S. ETFS currently offers four ETFs that individually hold all of the major precious metals, including gold, silver, platinum, and palladium. By far its most popular fund is the ETF Securities Physical Swiss Gold Shares (SGOL), which currently has over $600 million in assets and daily volume well over 100,000 shares. Unlike other physically-backed gold funds, SGOL holds all of its gold in a secure vault in Switzerland; holdings are audited twice a year and the company also publishes the gold bar numbers on its web site, giving investors further peace of mind with regards to the safety of their investments. Thanks to the success of this novel approach, the company has filed with the SEC in order to bring a similar product to market that keeps its bullion in a secure vault in the island nation of Singapore, an increasingly important financial center given the impressive Asian growth rates in recent years [see Can Anything Stop The Singapore ETF?].

Gold Storage Diversification

If brought to market, this new fund would mark the fifth gold ETF which physically holds the underlying bullion but the first outside to store gold in a vault outside of the Western world. This distinction would allow investors to obtain a greater level of diversification and help to mitigate political risk. Currently, the two most popular gold ETFs, iShares COMEX Gold Trust (IAU) and SPDR Gold Shares (GLD), both store gold in London [also read Gold ETFs: Where Do They Go From Here?].

Why Singapore?

Singapore has always been the financial hub of Southeast Asia, but it is fast becoming a global financial center rivaling the likes of Hong Kong and Tokyo. According to the prospectus:

After London and Zurich, Singapore is one of the key regional cities for physical gold trading and one of the largest gold trading centers in Asia. Singapore was traditionally linked to the consumer and jewelry markets but is slowly becoming a hub for investment trading as well. In 2010, the Singapore Mercantile Exchange launched the first locally settled Gold futures contract, and Singapore opened its first free-trade zone for the custody and storage of precious metals.

The country also has a transparent legal system free from corruption and a stable political environment. In a recent competitiveness report, Singapore was ranked in the top ten for legal rights, regulation of securities exchanges, and strength of investor protection. This suggests that the country could make for an excellent place to store precious metals, ensuring that the new fund will be likely to attract a great deal of attention if the company is able to bring the product to market [see all the ETFs that offer exposure to Singapore in our Country Exposure Tool].

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Disclosure: Eric is long gold bullion and IAU.