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Setting the

Gold Standard
An investor’s guide to the
gold market and gold ETFs/ETCs

This brochure aims to provide investors with a better
understanding of the physical gold market and,
greater insight into the structure of physical gold
ETFs/ETCs. It helps investors understand key features
to choose the right gold product.

The first part of this brochure deals with the gold market including its
fundamental characteristics, mechanisms, and main institutional bodies.

The second part retraces the history of gold ETFs and ETCs which
goes together with the history and track record of ETF Securities.

The final part provides a roadmap for identifying whether a
specific gold ETF/ETC structure is ‘best of breed’.

unallocated accounts 05 What is a London ‘Good Delivery’ bar”? 06 The investment case for gold Growth of gold ETFs/ETCs 10 Gold ETFs/ETCs milestones 11 About ETF Securities 12 ETF Securities’ physically-backed gold product suite The Gold Standard 13 Security 13 Transparency 14 Cost efficiency 14 Physical holdings quality 14 Track record 15 Due diligence checklist 16 Physical delivery example – Gold Bullion Securities (LSE: GBS) .Contents The world gold market at a glance 02 Who holds the gold? 02 Supply and demand 03 How the over-the-counter market works 03 The London gold market 04 Loco London and loco Zurich 04 How is the London fixing price determined? 05 Special focus Vaulting and gold clearing 05 Allocated vs.

are underpinned Private investment 17% by the supply and demand dynamics Other fabrication 12% of the gold market.The world gold Xxxxx market at a glance For thousands of years. As financial markets developed total approximately 163. The following chart shows receded into the background and many an estimated breakdown of those stocks. The vast majority of the gold ever an investment and simply an object of mined still exists and is estimated to beauty.000 tonnes rapidly during the 1980s and 1990s. it is fungible. gold has been Who holds the gold? valued as a global currency. investors lost touch with this asset of last resort. relative to the supply flow. gold (at end-2008). and the inventory of above-ground stocks is enormous. bars and other retail demand Indentifiable investment 31% Industrial and dental 12% ETF Securities believes that three factors Source: GFMS set gold apart as an investment from most other commodities: it is indestructible.880 tonnes) Mine production 63% Recycled gold 31% Official sector sales 6% Source: GFMS 02 | Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs . Unaccounted 2% Source: GFMS Investment demand for gold has soared (tonnes) 1200 1100 800 Supply and demand 600 The following two charts show the main 400 sources of supply and demand of gold as at 31 December 2008: 200 0 World gold demand in 2008 (3. Jewellery 51% including its characteristics as an Official sector 18% investment vehicle. Recent years have seen a striking Above-ground gold stocks increase in investor interest in gold.880 tonnes) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 ETF/ETC demand Jewellery consumption 57% Coins. a commodity. Gold’s extensive appeal and functionality. World gold supply in 2008 (3.

ScotiaMocatta and UBS). size. a further 59 full members. The OTC market trades on Thanks to London’s historical leadership system. which have contributed to the The OTC market has no formal structure development of bullion clearing in London.’ which are members of the LBMA. identifying marks help facilitate physical precious metal London.lbma. destinations for delivery ‘THE LBMA ACTS AS THE PRINCIPAL and/or silver. options and other derivatives. the trade association that acts as In addition to coordinating market J. Deutsche the ‘London Good Delivery Lists. in the case of gold and other factors. These clearing and vaulting services The main centres of the OTC market are fineness (or purity).uk members (Barclays. and no open-outcry meeting place. as well as others in the global over-the-counter gold is cleared OTC market. There are The London Precious Metals The global trade in gold consists of over. trade with each other through the London bullion market. forth in The Good Delivery Rules for Gold forwards.1034768 grams. Bullion dealers customise POINT OF CONTACT BETWEEN THE bullion. metal transfer instructions. with the LBMA ensures and maintains tend to transact their business through one The unit of trade in London is the fine troy an orderly and efficient loco London of these market centres. as well as for their Bank. Most global over-the-counter gold trading together with exchange-traded futures The London gold market is cleared through the London clearing and options. typically involving jewellery and small bars (1 kilogram or less). London ‘Good Delivery’ bars meet the specifications for weight. most the world cleared and settled in London. and Silver Bars published by the LBMA. six offer clearing services. Market makers. of jewellery and industrial products. MARKET AND ITS REGULATORS’ England. account facilities at the Bank of transactions to meet clients’ requirements. manufacturers acceptable refiner) and appearance set quality swaps and liquidity management.lpmcl. (LBMA). 1 troy ounce = 31. the coordinator for activities conducted activities. with The principal activity of the LPMCL is the and with their clients on a principal. Zurich and New York. positioning between U. plus. central banks. member of LPMCL has vaulting facilities relatively flexible market in terms of under its control for the storage of gold quotes. its regulators. Deutsche Bank. www.P Morgan. The OTC market provides a assayers of gold.000 grams = 32. which a 24-hour per day continuous basis and in the precious metals market and unique operates a central electronic metal clearing accounts for most global gold trading. Bullion dealers have offices around the world and most of the world’s major bullion dealers are either members or associate members of the LBMA. Of the ten market-making members of the Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs | 03 .How the over-the-counter market works LBMA.S. dimensions. with deals between parties throughout as its cutting edge clearing price. and Société the lists of LBMA-accredited smelters and respective account holding clients. HSBC. the LBMA acts as the principal This bullion clearing function enables on behalf of its members. ScotiaMocatta. bullion credit are between the parties directly account management and the resultant involved in the transaction. bullion market centred in London. working in close conjunction together with investors and speculators. and facilitates Dubai and several cities in the Far East also 1. Market makers The London Bullion end-of-day position squaring and covering include the market-making members of Market Association (LBMA) between the six London bullion clearing the London Bullion Market Association www. whose conversion between grams is: bullion clearing service. All risks and issues of world cleared and settled in London. Mining (including the assay stamp of an LBMA movement logistics. of associate members around the world. A primary function of the the London bullion clearing members LBMA is its involvement in the promotion themselves (all of the London bullion The five LBMA market-making members of refining standards by maintenance of clearing members are market making of the gold fixing are: Barclays. and other point of contact between the market and settlement of both the trades between participants in the London bullion market. Centres such as ounce.1507465 troy ounces and the international trading on the OTC transact substantial OTC market business. companies. HSBC. location swaps. and Asia as well hub. deals between parties throughout the daily clearing (or settlement) of precious to-principal basis. Each Générale. plus a number Clearing Limited (LPMCL) the-counter (OTC) transactions in spot. managed by the LPMCL.

which may result in a price premium. Any other market participant other of these prices when looking for a wishing to participate in the trading on basis for valuations. the second principal centre supply restrictions may require gold to be for spot or physical gold trading is Zurich. price determined? each of which is a bullion dealer and a The gold market operates 24 hours a day member of the LBMA. 04 | Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs . HSBC. through trading in the Far East.Xxxxx Loco London and loco Zurich accepted. The members of the on the basis of either the morning (AM) gold fixing are currently Barclays. time and the afternoon session starts at Many long-term contracts will be priced 3:00 PM London time. Twice daily. of vault custodians 10 2 How is the London fixing fix is traditionally limited to five members. Formal participation in the London the time of the fix. It is important to note that on the to the London bullion market. to be quoted loco London and vice versa. flown in from London to meet demand where LBMA ‘Good Delivery’ bars and other through physical loco swaps or inventories bars of different weight and purity are swap. which allows loco London market only LBMA ‘Good for LBMA ‘Good Delivery’ gold. of clearers 6 2 No. located in Zurich. The London benchmark for daily gold prices and is fix is widely viewed as a full and fair quoted by various financial information representation of all market interest at sources. For eight hours a day. gold physically held in New York or Hong The loco Zurich bullion specification is close Kong. including LBMA Clearing system London Bullion Clearing Loco Zurich Clearing (electronic) (telephone) Regulators FSA & BoE Swiss National Bank No. ScotiaMocatta and Société participants will usually refer to one or the Générale. Deutsche or afternoon (PM) London fix. and market Bank. the fix is required to do so through one of The London fix is the most widely used the five gold fixing members. there is a fix which provides session of the fix starts at 10:30 AM London reference gold prices for that day’s trading. The size of the market or After London. The morning trading hours. during London among the five member firms. Loco London Loco Zurich Trade body LBMA No trade body Good Delivery list LBMA only All types of bars are accepted. Europe and The chairmanship now rotates annually North America. this is also valid for and closing an hour earlier than London. physically Delivery’ bars are acceptable for delivery. trading The terms ‘loco London’ gold and ‘loco occurs simultaneously in London and Zurich’ gold refer to gold physically held Zurich – with Zurich normally opening in London and Zurich.

bear the stamp of one of the smelters and 1. smelters and assayers whose gold and The client has full title to this metal. client has a sufficient balance). Unless otherwise specified. under security with another company. Special focus What is a London ‘Good Delivery’ bar? A London ‘Good Delivery’ bar is acceptable Vaulting and gold clearing for delivery in settlement of a transaction Certain members of the LBMA offer on the loco London OTC market. the members of the London customer and are segregated from other bullion market compiled lists of accredited metal held in the vault of that dealer. specific bars of metal but gives the holder a right to require the delivery of certain The LBMA ‘Good Delivery’ List is now amounts of metal.2. in settlement against transactions conducted between each other and with Unallocated accounts other acceptable counterparts. thanks to the stringent criteria for unallocated accounts (provided the assaying standards and bar quality that 2. unallocated accounts list together with a unique serial number Allocated accounts and year. security risks and costs involved in the A London ‘Good Delivery’ bar must also physical movement of the metals. evidencing that uniquely identifiable bars of metal have been ‘allocated’ to the Historically. 1. The fine gold content of a gold bar is each other for the settlement of all calculated by multiplying the gross weight mutual trades and third party transfers.000 (99. with a minimum fineness (or purity) of The clearing members use a daily clearing 995 parts per 1. of the bar (expressed in units of 0. Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs | 05 .025 fine This system is designed to avoid the troy ounces) by the fineness of the bar. be of good system whereby those members utilise the appearance and be easy to handle and unallocated metal they maintain between stack. a London own vaults for storage of physical metal ‘Good Delivery’ bar must contain between and/or have the use of storage facilities 350 and 430 fine troy ounces of gold. a client may de facto standard for the quality of gold make exchanges between allocated and bars. Typically clearing services. an applicant must satisfy. silver bars they would accept without with the dealer holding it as custodian. Subject to the terms of widely recognised as representing the a client’s account agreement. Such bars unallocated form. Historical London ‘Good Delivery’ bars. Bullion held in this earned the distinction of London ‘Good form does not entitle the holder to Delivery’ status. question. assayers who are on the LBMA approved Allocated vs. The London Gold Fixings have relied on London ‘Good Delivery’ bars for the settlement of transactions since 1919. the An allocated account is an account Gold Spot Price always refers to that of held with a dealer in a customer’s name a London ‘Good Delivery’ bar. They may use their referred to as 400-ounce bars. Every bar Most metal traded in the London and that comes into clearing is controlled by a Zurich markets is traded and settled in clearing inspector for conformity.5%).

8% 26.S. Equity U. Equity U.2% 4.9% 15.4% 4.2% 2.3% 9. Equity Cash Cash Bonds Bonds Real Estate Real Estate Bonds U.7% -37.8% -19.9% 27. Equity Bonds Real Estate Real Estate 1.0% -3. Equity – S&P 500 Bonds – Dow Jones 10Yr Corporate Bonds Index Real Estate – FTSE EPRA/NAREIT U.4% 19.2% Data U. Equity -22.8% 5.1% 2.6% 1. Equity Cash Cash -4.5% 5.6% -42.S. All returns are converted into USD 06 | Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs .S.Xxxxx The investment case for gold as gold historically has a low correlation Portfolio diversification benefits with most major asset classes.S.4% 6. Bloomberg Year 2002 2003 2004 2005 2006 2007 2008 2009 Past 10Yrs 1 Gold Real Estate Real Estate Gold Real Estate Gold Gold U.8% -1.7% 10.5% 4.S.9% 7.4% 23.5% 1.7% 4 Real Estate Bonds Gold Cash Cash Cash U.0% 5.8% 22.S. Equity Gold 24.4% 31.S.4% 24. Equity U. LIBOR 3M Data until 31 Dec 09.2% 3 Cash Gold Bonds U.4% 3.6% 5.0% 0.S.9% 31. providing The inclusion of gold into a portfolio unique portfolio diversification benefits provides useful diversification benefits for long-term balanced portfolios.S. Asset class performance ranked (annualised returns) Source: ETF Securities.8% Performance ranking 2 Bonds U.2% 5 U.S.S.2% 17. Gold – Gold Spot Price Cash – U.1% 1.0% 28. Equity Real Estate Gold Bonds Cash Gold Bonds 14.8% 28.2% 5.5% 11.4% 7.5% 0.3% 1.S.

CPI inflation March 1968 – August 2009. Source: Bloomberg Annual % Annual % 200 16 14 150 12 Gold Spot Price (USD) 10 U. well relative to equities Gold Spot Price vs. Source: Bloomberg 10% 5% 0% -5% -10% -15% Gold Russell gold FTSE 100 MSCI World S&P EuroStoxx50 Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs | 07 . U.S. from Oct 1998 to Dec 2008. Gold has often performed and provide a source of liquidity.A hedge against inflation and event risk and other risk assets during periods of Gold has historically performed well during extreme economic and financial turbulence periods of significant monetary easing and – helping to buffer portfolio performance high inflation.S. CPI inflation (RHS) 100 8 6 50 4 2 0 0 -2 -50 -4 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Return during S&P 500 worst 20% Monthly data.

TWI Source: Bloomberg Annual % Annual % 200 -30 150 -20 100 -10 50 0 0 -50 10 -100 20 -150 -200 30 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Gold Spot Price (LHS) U.S. TWI (Federal Reserve Broad Index. Gold Spot Price vs U. unlike paper currency. cannot be paper money/debt issuance giving it store devalued by a government.Xxxxx A hedge against currency weakness limited in supply versus unlimited potential Gold. Inverted Scale) 08 | Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs . It is physically of value characteristics.S.

S. the historical chart below can provide some elements of decision. forward.S. Dollar index over the last 10 hedge on a gold investment.Investors often question whether it is Comparing the gold price with the trade appropriate or not to set up a currency weighted U. While this years shows that the gain of an un-hedged decision purely depends of investors’views gold investment would have far exceeded with regards to currency movements going any potential loss on the U. Gold Spot Price vs U.S. trade-weighted index Gold Spot Price Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs | 09 . Dollar itself.S. traded-weighted index January 1999 to September 2009. Source: Bloomberg 400 350 300 250 200 150 100 50 0 Jan 99 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 U.

(LSE: GBS) listed on the LSE in partnership with the World Gold Council (WGC). January 2010 – Gold ETFs are traded on 13 exchanges around the world and total AUM reach over $50bn. Exchange (LSE) shortly afterwards. excess of EUR600m. Gold ETFs/ETCs have proven successful with similar products now listed on 13 November 2004 – SPDR Gold Shares exchanges throughout the world and listed on the NYSE in partnership with generating average weekly volumes in the WGC. this time created in conjunction with the December 2003 – Gold Bullion Securities World Gold Council. Chairman similar product listed on the London Stock of Gold Bullion Ltd. April 2007 – ETF Securities lists ETFS Physical Gold (LSE: PHAU) in London.Growth of gold Xxxxx ETFs/ETCs The first gold ETF/ETC was created in Gold ETFs/ETCs milestones April 2003 by ETF Securities’ management April 2003 – First Gold ETF: Gold Bullion and listed on the Australian Securities Securities (ASX: GOLD) launched in Exchange (ASX). Physically-backed gold ETFs – Global AUM in US$bn Source: World Gold Council as at August 31 2009 60 50 40 30 20 10 0 Apr – 04 Jul – 04 Oct – 04 Jan – 04 Apr – 05 Jul – 05 Oct – 05 Jan – 06 Apr – 06 Jul – 06 Oct – 06 Jan – 07 Apr – 07 Jul – 07 Oct – 07 Jan – 08 Apr – 08 Jul – 08 Oct – 08 Jan – 09 Apr – 09 Jul – 09 10 | Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs . This was followed by a Australia by Graham Tuckwell. September 2009 – ETF Securities lists the first gold ETF backed by physical gold held in Switzerland on the NYSE Arca.

simplicity of use and true liquidity. whether in terms globally and are supported by over 20 invested in over 180 securities.5m oz) invested in Gold ETCs as at the or as part of a diversified portfolio strategy ETF Securities works with the world class end of February 2010. aimed at maximising investor returns and Morgan as the custodian for the gold security over the long term. with the robustness of their structure. Global Listings North America Europe Asia Pacific New York Stock Exchange London Stock Exchange (LSE) Tokyo Stock Exchange (TSE) (NYSE Arca) NYSE – Euronext Paris/Amsterdam Australian Securities Exchange (ASX) Deutsche Börse Borsa Italiana Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs | 11 . spanning across multiple commodities or team in the precious metals market for its equities. Morgan and the trustee the world. developing physically-backed strategies For the U.About ETF Securities Client service World class team Track record The rapid growth of ETF Securities is ETF Securities’ physically-backed gold ETF Securities is the global leader in exchange testament to its success in servicing clients’ ETCs are traded on seven exchanges traded commodities (ETCs).S.P. ETF Securities clients can count physically-backed gold ETCs. (or 8. For the ETCs ETF Securities is the second largest on the largest Sales & Marketing team sold in Europe and in Asia the custodian is physically-backed gold ETF provider in dedicated to ETFs in Europe as well as either HSBC or J. with over $17bn unique investment needs. is The Law Debenture Trust Corporation. of which $9bn of single stand-alone commodity products market makers and authorised participants.P. stored in Switzerland and Bank of New York (BNY) Mellon as trustee. with a proven track record in on strong in-house research capabilities.-listed products we use J. ETF Securities’ ETCs have revolutionised the commodity investment landscape. allowing investors to access the diversification benefits of commodities in a single trade.

Morgan Zurich. Morgan Zurich.S. Switzerland Australia (Australian Securities Exchange) ETFS Physical Gold ETFS Metal Securities Australia Ltd. Switzerland Japan (Tokyo Stock Exchange) ETFS Physical Gold* ETFS Metal Securities Ltd.A. London.Xxxxx ETF Securities’ physically-backed gold product suite Product name Issuer Custodian Vault location Europe (LSE. Deutsche Börse. (NYSE Arca) ETFS Physical Swiss Gold Shares ETFS Gold Trust J. HSBC USA N. London. UK ETFS Physical Swiss Gold ETFS Metal Securities Ltd. J. HSBC USA N. UK U. London.A.P. Borsa Italiana) Gold Bullion Securities Gold Bullion Securities Ltd.A. UK *Shariah compliant gold ETCs approved by Al Qalam Shariah board 12 | Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs . HSBC USA N.A. UK ETFS Physical Gold* ETFS Metal Securities Ltd. HSBC USA N. NYSE Euronext. London.P.

■ Neither cash. creations and redemptions. physically. the custodian nor any and easy to calculate. Fees should be clearly identified.The Gold Standard This section provides existing and potential ■ Audits and bar lists should be verifiable Easily understandable fee structure investors with an extensive list of criteria against the LBMA ‘Good Delivery’ list. showing backed ETCs and ETFs need to be backed Independent counterparties recognisable identifiers for each bar by 100% physical LBMA ‘Good Delivery’ Physically-backed ETFs and ETCs should held. nor certificates representing Transparent pricing the right to receive bullion. makers to efficiently trade the product leasing. Such These should be available to investors. be segregated ■ Physical holdings quality from any other assets held by the Daily bar list ■ Track record custodian (both physically and in Both the issuer and investors should its books and records). vehicle that holds physical gold. ■ Cost efficiency form. The ETF/ETC must be 100% backed by Transparency physical bullion at all times Published bullion holdings and clearly ■ The custodian should provide the identified parties are essential issuer with a bar list. broken for benchmarking whether a specific down and their impact on the Net Asset gold ETF/ETC structure is ‘best of breed’. at least one of which A strict due diligence process should the issuer’s other assets and liabilities). independence has long been a hallmark ■ The account should hold physical of good corporate governance for the ■ The procedures improve transparency LBMA ‘Good Delivery’ bullion fund management industry. weight and assay. name. this increases and provide that the product is 100% sufficient to cover 100% of the transparency and reduces any potential backed by London ‘Good Delivery’ bars. conflicts of interest. should be a The ratio of the security’s Net Asset Value substitute for physical bullion. to the London Gold PM fix should be stable (reflecting only the historical cost) ■ Neither the issuer. Value should be easy to calculate. serial number. ■ Bullion should be kept in fortified. securities outstanding. and. to the market. Reliable audit procedures ETFs/ETCs to ensure the product they are The issuer’s allocated account should considering investing in will intrinsically Investors should not be exposed to any be audited by both the custodian’s own meet their investment goals. receive updated account statements Security of the bullion backing the ETFs/ETCs. trading or pledging as collateral and provide best prices and execution bullion held in the allocated account. owned by the issuer. this allows market other counterparty should be lending. processes that govern physically backed independent bullion assayer. It is important that investors understand high-security vaults specifically designed the differences between individual gold for bullion storage. as a result. gold ETFs/ETCs are key to selecting a ■ The issuer should be a separate. updated daily for To act as secure investments. Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs | 13 . These generally comprise: brand gold bullion held in an allocated account have independent authorised participants. bankruptcy-remote entity (all the The Audit procedure should consist of bullion should be segregated from semi-annual audits. should be random and encompass both encompass five key areas: a physical inspection of the vault and a ■ Security ■ Bullion should be identified as owned reconciliation of the bullion with both ■ Transparency by the issuer and held in allocated the custodian’s and the issuer’s records. market makers and custodians. We believe credit risk towards the issuer or the rigorous internal audit procedures and that the robustness of the structures and custodian or any other counterparty: by an independent LBMA-approved.

reduce spreads of the LBMA and the LPMCL custody of a physical asset: gold bullion. bullion should be held with a offer spreads and an efficient creation/ Cash redemption custodian or sub-custodian who is an redemption processes.5%. Bullion should be LBMA Good Physical delivery Delivery bars Therefore it is crucial that all the For maximum security and liquidity the participants involved in the management physical redemption should be in the form ■ These bars have a set number of ounces of the product. unlike all other financial products The structure should allow for multiple The custodian should be a member firm they involve the management and the MMs to provide liquidity. mechanics and the need for security of the participate in the market. to ensure tight bid/ Zurich). trade 20bps either side of the London to reduce tracking error. ■ Custodians that trade in these markets It is essential that investors’ carefully Multiple market makers and APs also have vaults that are internationally. This is a critical Track record underlying physical gold price. precious metals market. fulfilling their respective roles.Xxxxx Cost efficiency Physical holdings quality ■ Creating outside London may also Product structure should be as cost LBMA-approved London ‘Good Delivery’ require a loco swap with London. point as non LBMA ‘Good Delivery’ bars Physically-backed gold ETFs and ETCs are cannot be sold in the London OTC market. flows. or limited in quantity. this should not involve LBMA/LPMCL member. Products with only reliability and strength of the London price (and can spike dramatically if one AP may trade at a premium as there wholesale OTC bullion market. study the track record of the issuer and reduce operational risk in the event recognised as meeting required assess whether it perfectly understands the any one AP or MM is no longer able to standards for security and storage space. are no independent arbitrageurs ensuring the bullion should be held in the form of that prices remain consistent with the London ‘Good Delivery’ bars. A competitive product should be authorised participants must be able supported by a network of liquidity to redeem 100% of their physical gold ■ Bullion held loco London is the most providers (authorised participants and holdings in a single transaction. for any exchange traded Physical delivery should not be restricted ■ They are the only bars permitted for product. This then provides If allowed. of London ‘Good Delivery’ bars delivered to and a required fineness (purity) of and trustee. If held anywhere else (e. are independent from each an allocated or unallocated LBMA account 99. in efficient as possible bars are paramount the event of a shortage of metal. liquidity is paramount. In addition. loco market makers). an LBMA-approved smelter/assayer. liquid. such as custodian. loco Tokyo bullion could The structure should allow for multiple APs provide access to bullion with the security. therefore demand outweighs available supply). the swap price could increase dramatically. result in metal trading at a premium or a discount to the London fixing price. 14 | Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs . Products with single or limited APs ■ Holding gold bullion outside London may should be avoided. unique in the exchange traded products Multiple market makers (MMs) world. and to ensure the prices are made around NAV and not trading at a premium. registrar.g. Investors and/or delivery in the London OTC market. Multiple authorised participants (APs) Physically-backed ETCs and ETFs should For example. depth for the largest institutional capital unnecessary costs. They must bear the stamp of other and possess a proven track record and should be within t+3 framework.

or borrowing against bullion Bankruptcy-remote issuer with segregated assets No credit risk to the custodian Limited operational risk No new ETCs/ETFs can be issued without the prior delivery of gold to the issuer’s gold account with the custodian Transparency All major counterparties are independent (APs. MMs. custodian. in vaults that meet required standards for security and size Track record Issuer has long operating track record under different market conditions Partners are all highly experienced in their respective fields Fund size is sufficient and reflects wide acceptance among investors Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs | 15 . including at least one random audit of the custodian’s vault Published bar lists with unique LBMA identifiers Cost-efficiency Multiple APs to ensure arbitrage opportunities and limit tracking error Multiple market makers to ensure maximum liquidity and reduce spreads Tight spreads and minimal tracking error Physical Holdings LBMA ‘Good Delivery’ bars Quality Held with a member firm of the LBMA and the LPMCL Held by a Custodian who is a loco London clearer. trustee.Due diligence checklist Yes No Security 100% backed by physical bullion held in an allocated account No lending of. registrar. auditors and issuer) Transparent and simple pricing Easily understandable fee structure Reliable audit procedures that are published.

The custodian receives and executes the instructions. They can choose confirm the Notice’s acceptance and redemption by cash or in gold.Xxxxx Physical delivery example – Gold Bullion 2. the GBS prospectus. 32 and 33 of unallocated bullion account. places the shares for redemption into an escrow account. dated 15 October 2009) and summarised below: 6. Once the Gold Bullion Securities investors can Redemption Notice is validated. and submit a Redemption Form for all or part the registrar contacts the Holder to of their GBS holding. held with an LBMA clearing member into which gold shall be transferred. 1. arrange for a US$ 750 (VAT inclusive) redemption fee to be deposited into ETF Securities is able to process physical the GBS bank account. this 3. The Legal holder of securities must lodge Securities (LSE: GBS) a Redemption Notice with the registrar (in this case Computershare Jersey). for gold. the investor must have an unallocated bullion account with 4. This is possible T+3 and awaits deposit of redemption fee. 5. Redemption should be necessary money-laundering checks permitted either directly or through an required by the Jersey regulator and authorised participant (AP). upon which a valid redemption notice intended redemption date and details of and redemption fee is lodged with an unallocated bullion account number the Company. Computershare calculates gold value at a member of the LBMA.00pm will usually be settled and in particular provide the details of three business days following the date the number of shares to be redeemed. The Legal holder of securities needs to complete a Redemption Notice (detailed It is important to note that redemptions information available in the prospectus) received by 3. Gold Bullion Securities sends a request to the independent trustee to instruct This process is clearly explained in the the custodian to withdraw gold and Gold Bullion Securities prospectus deliver to the holders’ nominated LBMA (extracts from pages 22. redemption and. undertakes the by physical gold. 16 | Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs . Computershare identifies Security guarantees that the product is fully backed Holders’ GBS holding. All gold ETCs/ETFs should allow 100% redemption of gold holdings. because the product is truly 100% backed by physical gold.

completeness. Products are priced in their not be taken. ETFS Gold invested. Canada or any other it. or timeliness of the data provided nor shall they have liability for any damages or any kind relating to such data. and investments in these products province or territory thereof. This offer or recommendation to enter This document is being provided to document is issued for the sole use of into any transaction with the issuers. Although ETFSM endeavours to ensure the accuracy of the content in this communication. and should fully understand relevant jurisdiction) and have professional the risks associated with such investments experience in investing. transmitted or distributed Trust is regulated by the United States base currency and can be traded in (directly or indirectly) into the United Securities and Exchange Commission multiple currencies therefore the value States or Canada. legal advice before making any investment under applicable law or regulation in the decisions. The third party data providers used to source the information in this communication make no warranties or representation of any kind relating to the accuracy. ETFS Metal prospectus. Investments in the issuers This document includes independent securities should be based solely on market commentary prepared by ETFSM the relevant prospectus of each entity. where the and Gold Bullion Securities Limited each carries with it certain risks which are set issuers are not authorised or registered for are regulated by the Jersey Financial out in the relevant issuer and Company distribution and where no prospectus for Services Commission. based on publicly available information. Past furtherance of a public offering of shares on the information contained within performance is not an indicator of future in the United States. taxation. and Services and Markets Act or its equivalent with the express consent of ETFSL. Investors circumstances is to be construed as for access to professional investors and should carefully consider the risk factors an advertisement or any other step in no other person or entity should rely set out in the relevant prospectus. which may be obtained at It does not constitute financial product www.etfsecurities. Setting the Gold Standard – An investor’s guide to the gold market and gold ETFs/ETCs | 17 . Where ETFSM has expressed its own opinions related to product or market activity. which are set out in the relevant entity’s advice nor should be construed as an offer for sale or utilised as the basis for any investment decision. of investments will be affected by the issuers may not be owned or acquired exchange rate movements. The value of an investment a issuer has been filed with any securities Securities Australia Limited (MSAL) is may decrease as well as increase and commission or regulatory authority. ETFS Metal Securities Limited (MSL) returns. persons who are considered professional the recipient and may not be copied.Disclaimer General Risk factors Restricted investors This brochure has been provided by The issuer’s securities may or may not be The document is not. regulated by the Australian Securities investors may not get back the amount This document nor any copy hereof should and Investments Commission. Securities issued by (each an ‘issuer’. and under no ETF Securities Marketing LLP. these views may change. Potential investors should obtain their investors (as defined in the UK Financial distributed or shown to any other person own independent financial. ETFSM does not warrant or guarantee its accuracy or correctness. together the ‘issuers’). with the assets of an ERISA plan (with This document does not constitute an the exception of ETFS Gold Trust). (ETFSM) suitable for a particular investor.

com e info@etfsmarketing. Tokyo 107-6012. USA Minato-ku. UK New York. ETF Securities Ltd. 2 London Wall Buildings 11th Floor. ETFS Marketing LLC. Japan 6th Floor. NY10005. Europe North America Asia Pacific ETF Securities Marketing LLP. 1-12-32 Akasaka London EC2M 5UU.etfsecurities. Japan t +44 (0) 207 448 4330 t +1 212 918 4954 t +81 3 4360 9101 f +44 (0) 207 448 4336 f +1 212 918 4972 f +81 3 4360 8201 e Alternatively please contact one of the local offices. please visit the website on . 48 Wall Street Ark Mori Building e info@etfscurities.Contact details For more information on ETF Securities products.