Gold GBP

ColdIron

Altior said:

which I consider to be the base price.

Gold is frequently quoted in dollars for convenience but it is no more true to say that it's 'base price' is dollars than to say it's base price is sterling or yen or euros

masonic

ColdIron said:

Altior said:

which I consider to be the base price.

Gold is frequently quoted in dollars for convenience but it is no more true to say that it's 'base price' is dollars than to say it's base price is sterling or yen or euros

To follow on from this good point, when someone is selling gold in dollars, pounds, euros etc, they'll be asking for currency of an equivalent value at that moment in time (forex fees notwithstanding). Just as when they buy it back from you.

Altior

masonic said:

Altior said:

I suppose it comes down to defining what is the true movement of gold. Yes if it is hedged it will replicate the movement in USD, which I consider to be the base price. As GBP has fallen vs the dollar it means that gold is now more expensive in GBP. As some readers may detect, I own the hedged ETC as I want to reflect what I view as the true movement of underlying gold over the long term. 

If I gifted you a gold sovereign, would you feel the need to take out a hedging contract to obtain the true return from your gold over the long term?

In that scenario, there is no need to track the underlying movement of gold. 

As I stated upthread, if I was interested in betting on USD I would just buy USD, not a gold etc priced in GBP.

I do get where you and others are coming from. 

Underlying this is what the investor is setting out to achieve. Do they want to track gold in a revalued currency (their own), or do they want to try and track the underlying movement of gold itself. Right now it looks like a mistake to have hedged, in a decade it could be completely different.

masonic

Altior said:
As I stated upthread, if I was interested in betting on USD I would just buy USD, not a gold etc priced in GBP.

and again, I must point out that a gold ETC priced in GBP is a completely different proposition to a GBP hedged gold ETC. The trading currency of a gold ETC makes no difference to the returns it delivers, whereas hedging does. The ETC priced in GBP is equivalent to the one priced in USD, but comes with the convenience of your broker not stinging you for a currency conversion charge.

Altior said:

Underlying this is what the investor is setting out to achieve. Do they want to track gold in a revalued currency (their own), or do they want to try and track the underlying movement of gold itself. Right now it looks like a mistake to have hedged, in a decade it could be completely different.

In my view, a currency hedged gold ETC is a solution looking for a problem. Which is probably why examples have only launched very recently, and they are much smaller in size than their conventional counterparts. There's no doubt if the pound significantly strengthens, a hedged version will deliver superior performance, but that is not coming from the gold.

Altior

It should regress to the underlying gold performance (in the currency it is originally valued in, USD). Of course there is a premium price for having it hedged....

ColdIron

Altior said:

(in the currency it is originally valued in, USD)

Gold is no more 'originally valued' in USD than my height is 'originally measured' in meters or inches. It's just a yardstick (pun intended)

masonic

Altior said:

It should regress to the underlying gold performance (in the currency it is originally valued in, USD). Of course there is a premium price for having it hedged....

It really won't. That's what unhedged would deliver. If you buy an amount of the ETC worth an oz of gold, then the unhedged ETC will always be worth an oz of gold before fees. The hedged version will fluctuate with the currency markets. Hedging will decouple the ETC from the underlying gold performance.