Cheapest Tracker of the Price of gold

masonic

TheGreenFrog said:

There is no "hedged" gold ETF.  Gold is in effect a currency and when you invest in a currency you don't then hedge that exposure as it would defeat the point of investing in the currency.  There are gold ETFs denominated in different currencies - but that is not the same as hedging.  All things being equal it is better to go for the ETF denominated in whatever currency you have available to invest - so that will be GBP for me.  Also simpler if you are investing outside a tax wrapper so you don't have to factor in FX rates when you calculate your CGT.

On this point the specific ETC that was suggested was not only traded in GBP, it also contained a currency derivative. I have not looked into it in any great detail, but would liken it to holding GSPX instead of CSP1 for S&P500 exposure, where the former is currency hedged but the latter merely traded in GBP.

Hedged vs unhedged gold ETC:

Hedged vs unhedged S&P500 ETF:

Hedged vs unhedged S&P500 ETF zoomed out:

aroominyork

masonic said:

aroominyork said:

OK, I get that – at least I think I do... You are surmising, or at least hoping, gold’s price will respond reasonably smoothly to forex fluctuations and inflation. You want to be exposed only to the demand-driven aspect of the gold price. So if there is a flight to gold and a flight away from the dollar, you only want to be exposed to the former. You see hedging as essentially leveraging the transaction. Is that correct?

It's a little simpler than that. I am just looking for electronic exposure equivalent to buying some number of sovereigns from a dealer and holding them securely myself. If I were to do that, and I wished also to profit from some flight away from the dollar, I'd need to buy that gold and also take out a separate spread bet or CFD, seeking to profit from the movement in USD:GBP. If I were inclined to do both of these things, then I might be tempted to combine them into a single security, namely the hedged ETF. But if I just wanted simple exposure to gold, I would not.

Yes, I realise that hedged gold runs counter to bullion under the bed. You're right that hedging would be a play on currency, and while there might be a case for that in this week's world, it does run counter to the perceived wisdom of gold being a long-term hold. Thanks for another informative discussion. 

TheGreenFrog

masonic said:

On this point the specific ETC that was suggested was not only traded in GBP, it also contained a currency derivative. I have not looked into it in any great detail, but would liken it to holding GSPX instead of CSP1 for S&P500 exposure, where the former is currency hedged but the latter merely traded in GBP.

Thanks - was not aware there was a "hedged" gold tracker and having read the thread more fully I now see what the discussion is about.  I don't think the position analagous to GSPX v CSP1 though because the motivation for investing in gold is usually just exposure to gold, as others have pointed out.  I note that the hedged ETF does not seem to have been around for very long - if I were being cynical I would say it is a product looking for demand rather than a product developed to fulfil demand.  I wonder how long it will be around for.

masonic

TheGreenFrog said:

masonic said:

On this point the specific ETC that was suggested was not only traded in GBP, it also contained a currency derivative. I have not looked into it in any great detail, but would liken it to holding GSPX instead of CSP1 for S&P500 exposure, where the former is currency hedged but the latter merely traded in GBP.

Thanks - was not aware there was a "hedged" gold tracker and having read the thread more fully I now see what the discussion is about.  I don't think the position analagous to GSPX v CSP1 though because the motivation for investing in gold is usually just exposure to gold, as others have pointed out.  I note that the hedged ETF does not seem to have been around for very long - if I were being cynical I would say it is a product looking for demand rather than a product developed to fulfil demand.  I wonder how long it will be around for.

Well yes, but I'd argue that the motivation for investing in a S&P500 ETF is usually just exposure to the US market, without adding on currency hedging, too

TheGreenFrog

masonic said:

Well yes, but I'd argue that the motivation for investing in a S&P500 ETF is usually just exposure to the US market, without adding on currency hedging, too

Agreed - having over the years bought several hedged instruments I long ago concluded they are a waste of time (and money - hedging is costly!).

Labtebricolist

Per the above, I think hedging makes sense for bond funds, where reduced volatility is likely to be one of the key objectives.  I agree that it would probably make little sense for most people in a gold fund.