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  • BearTrader3 BearTrader3 Dec 10, 2004 6:49 AM Flag

    RE: GLD...etf

    here ya go alph ............. Unfortunately, there are still some disadvantages to investing in the new gold ETF. Perhaps the most obvious is that it is not physical gold. For those investors who want to own gold as a store of value in case of international chaos, having an undivided interest in gold sitting in a London vault will provide no comfort. Those investors who want to run their fingers through their gold hoard will still have to buy physical gold, and deal with the storage and other hassles involved.

    Other disadvantages of the new gold ETF are:

    1. As I have written a number of times, the price of gold is very volatile and can move suddenly and without warning. The gold ETF will not change this characteristic of gold, but it does offer a way to quickly trade out of a gold position without the hassles of selling physical coins or bars.

    2. The success of the new gold ETF may be a self-fulfilling prophecy, at least for a while. The demand for the gold ETF is strong, requiring the Trust to purchase more and more gold on the open market. This buying has contributed to the upward pressure on the price of gold, and may continue to do so, as long as the gold Trust continues to grow in size.

    To illustrate, in anticipation of the launch of the Gold Bullion Securities ETF on the London exchange on March 31, 2004, the price of gold spiked to over $420 per ounce partly as a result of increased demand. However, only five weeks later, the price of gold was back down to $375 per ounce. A similar spike and subsequent decline occurred in 2003, shortly after the launch of the Australian gold ETF.

    Some believe that the latest price spike to $450 is largely due to the wave of gold-hungry investors gobbling up the new gold ETF, and that prices will fall, perhaps sharply, once the initial feeding frenzy is over. I would not be surprised.

    3. While the expenses of the gold ETF will be kept to a low 0.4%, the Trust will have to sell part of its gold stores to pay these expenses. Thus, over time, the fractional amount of physical gold represented by each share will decrease.

    4. While the form of the gold ETF investment will be similar to a stock, the IRS will still classify these shares as a �collectible� for tax purposes. This means that long-term gains will be taxed at a higher 28% rate reserved for collectibles, rather than the 15% rate for other types of investments.

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