Lunch of unnecessary pain

This is not a cash cow or a gold bull, it is a milk jug on the window sill next to where I ate toast and tomatos in a freezing kitchen in Hackney. As I ate the radio told me that the Bank of England had decided to inject another £50bn into the UK economy and that Greece had agreed to austerity measures. (Here's the FT on both: euro climbs on hopes of Athens deal).

I thought both of these would make buying gold an unlikely event today. I was imagining that the pound would have fallen in value as more QE would undermine the currency and I thought the gold price would rise - everything would rise - on good news about Greece.

It looks like I was wrong on both counts. The pound actually gained against the dollar and gold was looking cheaper for UK investors for a moment. Alice Ross in the FT said: "Analysts said that markets had already priced in a fresh £50bn of liquidity, with the rise in sterling suggesting fears that the BoE could have announced a higher level of £75bn had it not been for recent signs of improvement within the UK economy."

The chart shows ETF Securities' PHAU (US $ denominated physical gold ETF) vs PHGP (pound sterling denominated physical gold ETF).

Although since writing the above the price of gold may now be on its way up a bit ($1,740ish):

So it's back to waiting for the price of gold to fall. I think it will happen but I've generally been wrong in most of my thinking so far.

Spreads, sterling gold vs dollar gold

As the eurozone summit progressed today the performance of ETF Securities' sterling denominated (PHGP) and dollar denominated physical gold ETFs (PHAU) diverged, as did their spreads (although I'm still waiting to get a proper breakdown of these from ETF Securities.)

When I looked around 2pm today PHAU shares had a 0.04% spread (the difference between the price at which I can sell shares and the price at which I can buy them)

While PHGP had a 0.2% spread. Although they're both small figures, that is a five-fold difference.

Today PHAU was among the top ten shares bought by Hargreaves Lansdown clients making up 1.3% of the value of all shares bought.

Whatever the political outcome of the eurozone crisis and the summit, it was never likely to suit everyone involved. All parties want a solution of some kind but will employ brinkmanship to make their voices heard. It is ongoing.

Something happened but what it was is still unclear.From the point of view of an under resourced gold ETF investor all I could see was this divergence of paths between sterling gold and dollar gold earlier today.

Dollar denominated gold gained while sterling denominated gold fell. That means that my dollar denominated physical gold ETF (PHAU) gained nearly 1% but if I had sold it, the dollars I would have got from the sale would have been automatically converted into pounds sterling.

And pounds sterling, as well as the euro, gained against the dollar as the build up to the summit results went on before settling back in the aftermath - as did the gap between PHGP and PHAU.

That's the way the ETF works. So my actual return would have been more akin to the sterling denominated ETF PHGP. In effect, the dollars I made from gold would have been swallowed up by the dollar falling in value against the pound.