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Figure of the month: 1966

News Arnulf Hinkel, financial journalist – 01.06.2022

Almost as old as the idea of using gold as a store of value is that of trading gold without physical exchange to save the cost of transport and safe storage. Since the introduction of the first major commodity exchange – in other words, for centuries – gold has therefore been traded via futures contracts. Much more recent is the practice of backing securities for exchange trading with physical gold, thus hedging investments against defaulting issuers.

First physically-backend gold fund issued in Canada

Issued in 1961, the Central Fund of Canada was first listed on the Toronto Stock Exchange in 1966. The fund was backed for the most part with physical gold, the rest with cash deposits. Rather unusual for a gold fund today, the Central Fund of Canada was closed-end, a model many are familiar with from real estate funds. It was not before 2003 that the first gold fund was set up in a way that would be seen as common today. In that year, the first gold-backed ETF was listed on the Australian Stock Exchange. The same ETF – the SDPR Gold Shares – was admitted to trading on the New York Stock Exchange the following year. Over the first three trading days alone, demand for shares of the fund already exceeded the billion-dollar mark.

EU: gold ETCs instead of ETFs

The general ETF euphoria in the US soon spread to European investors. However, there was a catch regarding gold ETFs: according to EU law, an ETF must offer a certain risk diversification, as is the case, for example, with ETFs on the EURO STOXX® Index. In the EU, there are no gold ETFs, a problem solved with the launch of ETCs in the form of gold-backed debt securities. Launched in 2007, Xetra-Gold, for example, quickly became the most traded commodity on Xetra®. Today (as of April 2022), European investments in gold ETCs with holdings of almost 1,700 tonnes do not lag far behind the holdings of gold ETFs in the US, which are currently 1,990 tonnes.

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