ETF Securities physical metal spreads widen massively in April

click on chart to enlarge

London Stock Exchange statistics show that spreads of a popular physical gold ETF  - the ETF Securities Physical Gold £  with the LSE ticker of PHGP  - widened to 1.36% in the week between 10 April 2012 and 13 April 2012.


In the same week two other ETF Securities products also saw massive spikes in spreads. The most dramatic commodity ETF spread was ETFS Tin (PHSN) which saw its spread widen to 14.77% when it was (already quite wide) at 2.3% the week before.

Also (on the chart above) ETFS Physical Swiss Gold (SGBS) saw its spreads widen to 2.3% for the same period when they were usually between 0.25 and 0.57 in the other figures I looked at.

Retail gold ETF attracts 10 fold more buying than selling

As the gold price continues to fall I rather urgently need to assess my position. However some UK retail gold investors seem to be pretty clear that today presented a buying opportunity. 

The (allegedly) most popular physical gold exchange traded fund for retail investors -  the ETF Securities sterling denominated fund with the London Stock Exchange ticker PHGP -  has seen buyers spending nearly 10 times more than sellers have sold today. With £5.2 million worth of shares bought by investors compared to £650,000 worth of shares sold. (The most popular retail gold ETF? dealt with below)

(Click on images to expand them)

I bought gold today

On the London Stock Exchange it looked like Physical Gold ETFs were being bought.
The busiest was Source (SGLD) with £67 million bought vs £66 million sold.

1.8% error in ETF Securities' physical gold ETFs PHAU and PHGP?

There was a near 2% drop in the price of ETFS Physical Gold (PHAU) on Tuesday that didn't appear to correspond with the spot price of gold. The drop happened after a large trade of the ETF for the day (an automatic sell order  of 11,000 shares worth around £1.8 million).

iShares physical gold ETF spreads shot above 3%

Weekly ETF trading data from the London Stock Exchange show that physical gold ETFs make up the majority trading in exchange traded products and that spreads -  the difference between the buying and selling price of shares - for one of these physical gold ETFs rose above 3% at the beginning of the year.

Source physical gold ETF SGLD vs PHAU - cheaper, growing fast

Today I tried a bit of research on the size of gold ETFs traded on the London Stock Exchange and on the spreads investors are likely to see (with a helping hand from Index Universe).

The process reveald a few more physical gold ETFs than I expected but most of them were pretty small compared to PHAU, GBS and Source (SGLD), although I couldn't always find their assets under management.

(Correction) £8 million PHAU gold ETF sale at 9.44 am

It may not compare to the 31 tonnes of gold futures sold on 29 February after Ben Bernanke's speech -  but this morning someone sold an £8m lump of PHAU shares on the London Stock Exchange.

Check LSE not broker for $ price of PHAU gold ETF shares

In the last post Hargreaves Lansdown (HL) told me what I'd paid in dollars for my ETF Securities Physical Gold shares (PHAU) because it wasn't on my contract note. I then asked them whether I needed to get in touch with them every time I traded to find out what I'd paid in dollars.

One of their traders emailed me saying that for now the details of how much I'd paid in dollars would not be available via my HL account but they were looking into adding them.

In the meantime I was told that I could find the particulars of my trade, priced in dollars, on the London Stock Exchange website.

So I took a look and yes, the details of all trades for one day are available for every share that is dealt on the exchange. An investor will need to be able to identify their own trade. I'm hoping I can do so just by knowing the number of shares I bought and the time I did the trade (and hope that no one else had done anything too similar recently).

How do you find these dollar prices? You can simply type PHAU into the search at the top of the LSE site and its page will come up - half way down you'll find a box showing the five most recent trades.

If you want to see all the trades for that day then adjust the controls above the displayed trades.

It should look like this:

What happened when I bought PHAU gold ETF?

I paid £907.78 for 8 PHAU shares (ETF Securities Physical Gold ) at 11.20am on 22 September 2011. This physical gold exchange traded fund is valued in dollars. When I bought it my pounds were converted into dollars by my broker Hargreaves Lansdown and used to pay for the shares. But the price I paid in dollars was not mentioned anywhere on the contract note from Hargreaves Lansdown and neither was the exchange rate my pounds were converted at.

This meant that I could not see how much I had actually paid for the gold and how many dollars my pounds had bought in order to make that payment.

I'm a novice as a gold ETF investor but I would have thought an investor should have this information, so I asked for it. Hargreaves Lansdown staff were helpful but, at first, weren't sure I'd be able to get an answer. However I did get a reply by email saying that all the figures had been supplied in sterling because all the trades were settled in sterling.

But Hargreaves also added that the "dollar price for your purchase of eight shares in ETFS Physical Gold (PHAU) was $172.734 per share, which converts to £111.9787."

That's an exchange rate of 172.734/111.9787 which equates to $1.54 per £1 which is pretty much what I worked out the day before yesterday.

I'm not yet sure how useful it is for me to know the dollar value of the gold or the dollar value of my pounds. But it feels like I should know this and be able to evaluate its usefulness for myself.

ETF Securities seems to agree. It doesn't say much about currency in PHAU's prospectus other than this pretty obvious point:

"Currency: Bullion prices are generally quoted in US dollars and the price of Metal Securities will be quoted on the London Stock Exchange in US dollars. To the extent that a Security Holder values Metal Securities in another currency, that value will be affected by changes in the exchange rate between the US dollar and that other currency."

The impression I got from Hargreaves Lansdown was that the conversion into pounds and dollars was automatic - I wasn't sure if ETFS was responsible but I think it is Hargreaves that does this bit

I must have got the wrong end of stick and maybe it's done by Hargreaves at the moment of buying or selling - but I don't know.

The other mystery is the spread which didn't look at when I bought the shares - there was quite a short space in which I had say accept the price I was offered and I didn't think to look. So I don't know, if I had decided to sell my PHAU shares straight away, how much would I have lost just on the difference between the price I bought at, and the price at which I could sell back to market makers.

I took a look a the PHAU page on the London Stock Exchange but this said the spread at market close on Wednesday was a massive 3.2% (a bid of $156.5 and an offer of $161.5) and I think it must have been talking about something else.

I had a look at the spread this morning at 8.28am on the Hargreaves Lansdown page for PHAU and it showed a much lower spread: the bid $161.42 and $161.66 offer on Hargreaves Lansdown's site. (Maybe the LSE figures were daily highs and lows)

Apparently the spreads for the £ pound denominated gold ETF - which goes under a PHGP ticker - are wider. I'll have a look later, but I'm not yet clear on how to make knowledge of spreads useful to me.

I'm thinking that there will be times when spreads widen and when they narrow and I want to trade when they are narrow - but I don't know if these changes are significant enough for me to bother worrying about them. And, because I didn't look when I bought the shares, I'm not sure if the bid and offer price were shown - and if that was in £ or $ - but I'll have a look.

At the moment I am still in the process of understanding what I've bought but at least it's distracting me from the near 10% loss since I bought it.

The start: PHAU

This is a very dull attempt to work out what I've gone and done. I bought 8 shares of ETF Securities' physical gold exchange traded fund (PHAU) for £895.8296 at 11.20am on 22 September 2011. The cost of the transaction was £11.95 and I did it through Hargreaves Lansdown.

According to Google Finance, at 11.20am on 22 September, PHAU shares were trading at about $172.7 each. From my HL receipt I don't know what I actually paid in terms of dollars, only in pounds and that was £111.9787 for each share. Assuming what I paid was somewhere near the $172.7 per share I think I got an exchange rate at about $1.54 to £1.

According to Google Finance, the pound ended the 22 Sept trading at around $1.535 so this looks about right (Basically I bought on a day when the pound was particularly weak against the dollar so my pounds didn't buy so much. But then the strong dollar was the reason that the gold price fell... I'm hoping the fact that the price of gold fell further than the value of the pound made it vaguely worthwhile buying point. But these are all concepts I still have to get my head around).

This evening (a balmy but apocalyptic feeling October 3) my HL account said that my PHAU investment was down 7.61% and valued the 8 shares at £838.71. Considering the buying price had been £895.8296, the fall works out at around 6.3%. The other 1.3% is the £11.95 fee.

If I wanted to sell now, it would cost me another £11.95 in fees so, in effect, I am really down 8.91% on my original investment. I do not have to take the conversion fee from pounds into dollars into account as that, I hope, can only be what the £838.71 figure is based on - the value of my dollar investment in pounds.

Although I own a dollar denominated ETF I cannot keep dollars in my pound denominated Hargreaves Lansdown account so, as far as I can tell, I have no choice in the timing of the conversion from dollar into pounds.

So my PHAU shares - denominated in dollars but valued in pounds - have fallen by 6.3% (from £895.8296 to £838.71). Over the same period the dollar denominated ETF shares has fallen from $172.7 to $162.07 - a fall of 6.15%.

The difference between the fall of 6.3% in pounds and the 6.15% in dollars should be accountable somewhere. I'd imagine it would be a combination of the exchange rate and the spread between the price I bought at (bid) and price I could sell at (offer).

If the discrepancy is due to the value of the dollar I would expect the value of the dollar to have fallen by 0.15% against the pound over this period. On 22 September I was given an exchange rate of $1.54 to £1.

According to HL the exchange rate on my ETF is $1.5459 but Google Finance has the current rate around $1.5575. Even if the later rate is the one being used to calculate the value of my PHAU shares, it does not account for the 1.15% discrepancy over the last 7 trading days.

So the difference will also have something to do with the spread between the buying and selling price of the shares. At close today, according to the London Stock Exchange, the bid price was $161 while the offer price was $164.15 - that's a 1.95% spread, more than I was expecting. (It turns out that the LSE's spread data is talking about something else - Hargreaves has more realistic looking spreads on its factsheet for PHAU) It may not have been that wide when I bought my shares, and I don't know what price I paid for my ETF shares in dollars when I originally bought them.

The fact that the price at the time on the exchange gave a mid price of $172.7 doesn't tell me what I paid for it and unfortunately this price doesn't seem to be shown on my receipt.

Another point of possible interest is that my deal was done on Plus Markets, not the LSE. I don't know if that's significant. On 23 September I bought £1000 of the BlackRock Gold and General fund too. I am still working on my investment strategy - basically I'm blowing in the wind pretty much at the moment.