So, how much was that gold ETF again?

I still don't really know why I own gold or whether I trust it. But that hasn't stopped me thinking about buying more ETF Securities Physical Gold (PHAU).

After the Greek prime minister surprised everyone by calling for a referendum everything fell, including gold. The price of PHAU dropped by more than 2% during the day but ended the day down less than 1%.

As PHAU is a dollar denominated share I needed to find out how much of it I could buy with the pounds sterling that I own. When I looked at the exchange rate between the pound and the dollar I saw that the pound had dropped 1.3% against the dollar - this meant my pounds wouldn't go so far as they had done 24 hours earlier. But at the same time it meant my existing investment in gold hadn't lost as much of its value in terms of pounds sterling as it had in dollars.

Even so, I was still thinking about buying more shares in my gold ETF because the last time I bought I paid $172.7 per share. On that day - September 22 - the pound fell dramatically against the dollar and was only worth around $1.53 at end of the day. I got a slightly better rate and the combined moving parts - the gold price and the exchange rate - meant that I paid £111.97 for each of my PHAU shares.

Today the same shares were trading around $165.7 each and, because the purchasing power of my pounds had increased since my last adventure - (they now buy $1.59 each: Google Chart ) - I could have bought them for around £104.21 per share.

That's a fall of nearly 7% since my last buying point.

Information gap

Unfortunately I only worked out a general view - that I wanted to buy - and I had done it using Google Finance data before opening up my Hargreaves Lansdown (HL) account. When I started the process to buy the first HL page showed me everything in dollars:

(The prices shown, if you can read them, are from later in the day.)

I placed a deal via the "place deal" tab where I said I wanted to spend £1100 including costs. The last stage of the buying process was a 15 second window in which I had to decide whether I wanted to accept a specific deal. But this page only gave me a total cost in pounds which meant I didn't know how much I was paying per unit.

Luckily I was offered 10 units so I could work that out easily enough - but was it a good deal? Was it even what I expected it to be?

At 13.48 I pondered over this screen for 15 seconds:
It took a moment but I realised that I didn't have enough information here to know what the exchange rate was or how much I was actually paying for the gold in dollars. If I had a dollar price and a pound price I could have worked out the exchange rate if I wanted to.

At 14.01 I saw this screen:
At 14.13 I saw this screen for 15 seconds:

At 14.42 I saw this screen for 15 seconds:

So what's the problem? I can't tell if I'm making an unnecessary fuss about this. It could be argued that if I'm buying in pounds sterling so why do I need to know anything more than the price I'm paying in sterling?

To me the problem is clear. Only having a sterling value obscures the two important factors at work in the investment: the dollar value of gold and the value of my pounds against the dollar.

When I buy I want to know if the price is attractive because of a change in the currency relationship or because the thing that I wanted to invest in - gold - has performed well. The situation in one of these moving parts may be dominant and it may be changing for better or worse.

I don't think it's unreasonable for me to know these simple facts when making the investment.

What happened to the sterling price of PHAU today is a case in point. The price of gold fell but my existing investment didn't suffer too much because the dollar strengthened against the pound.

However, looking at the exchange rate I could see that, despite the pound falling more than 1% against the dollar, my pound was still a lot stronger than it had been the last time I bought Google Chart .

For now though, I have to accept that this information isn't available at the moment I buy.

What's more, as I discovered the first time I bought PHAU, it's not easy to get hold of that data even after the event.

This means that an investor needs to know beforehand what sterling price they will accept. They also have to accept that they will not know why a price may be better or worse than they expected. And if they want to find out they will have to go back to data that is 15 minutes out of date. This knowledge gap makes it difficult to decide whether they should wait or go ahead and buy at that moment.

Even if I decide to delay my buying decision for a few minutes and the price changes I won't know if it's because the currency has strengthened or if the gold price has changed.

These factors can change in seconds, particularly in times of market stress like today.

There is also a disconnect between the presentation of the data that alerted me to a potential good deal and the presentation of the price I was then offered by HL.

In my case I was attracted by a dollar price of individual PHAU shares on Google Finance (with a 15 minute delay) - this was roughly confirmed by Hargreaves Lansdown with another delayed dollar price per share. Then, at the final stage, in the 15 second window I had to make up my mind, I was confronted by a sterling price that gave me a total for all the units I was buying - not a figure per share.

Not only was this switch a little bit disorientating, it took me moment to realise that it was impossible for me to connect the pound sterling price I was being offered to a dollar price that had looked attractive.

PS. Interesting observations about the world of credit default swaps (CDS: insurance policy against goverments defaulting on bonds) from Jim Sinclair. He points out that a referendum in Greece could change the status of Greek debt to "default" and trigger those insurance policies.

If that happened attention could swing away from european banks to US banks who are the main sellers of CDS.

Also an interesting article from Galmarley.com: "The market doesn't wait conveniently showing the point at which we should get out. It hangs between greed and fear. When it falls it tempts us to hold on with the prospect of recoveries which don't happen, yet it punishes us repeatedly if we start selling, with bounces which would have saved us from our loss. Bit by bit it turns the shrewdest market operator into a rabbit."

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.