BlackRock Gold and General 6% spread

According to Hargreaves Lansdown the bid offer spread on BlackRock Gold and General fund was 858.10p to buy, 810.00p to sell - that's a spread of nearly 6 per cent - I'm not sure what it usually is.

ETF Securities replies to "spreads widen dramatically" claim

ETF Securities has replied to Gold ETF Investor's questions about spikes in the spreads (trading costs) of one of its most traded physical gold ETFs.

Figures produced by London Stock Exchange each week calculate 'time weighted' spreads. In the week ending 13 April 2012 a handful of ETF Securities products saw their spreads spike.

Those listed by Gold ETF Investor were:

PHGP: up to 1.26% from 0.14%
SGBS (ETFS Physical Swiss Gold): up to 2.41% from spreads between 0.25%-0.6%
PHSN: up to 14% up from 2.3% the week before.

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.

Should I buy more gold ETFs today?

The last time I looked (about 10.30am) I would have paid £1,019.43 including fees for 10 ETF Securities physical gold ETF shares (PHAU).

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.

Gold: tell me why I don't like manic mondays

As gold  markets open for Monday I'm about to go to bed...

ETF frenzy for private investors: gold included

Ten of the top 20 shares traded by clients of FTSE 100 broker  Hargreaves Lansdown were ETFs (exchange traded funds). The majority of these were ETF Securities commodities products and the most sold and the most bought of these was ETF Securities Physical Gold sterling (PHGP) which is exactly the same as PHAU.... except it is more expensive to trade. (Both are  automatically converted into sterling when sold.)

PHGP made up 2% of deals bought while PHAU was 1.2% on 19 December.



On the  selling front PHGP made up 3.5% of the value of all shares sold through Hargreaves Lansdown while PHAU made up 2.3%.



I don't know if I'm missing something but it looks like clients of Hargreaves Lansdown are mostly private investors and they mostly buy and sell the sterling product. But the dollar version has more assets under management, presumably institutional investors, who pay less to own it. Some people are trading chunks of PHGP shares worth more than  £1 million. If they bought and then immediately sold they would lose £2,000 if they did the same with PHAU they would lose £800.


For PHAU the spread was 0.08%:

While the spread for PHGP was more than double that at nearly 0.2%:

Today one the largest trades in  PHGP was over £500,000 but on Thursday 15 December some were around the £1 million mark.


19 December 2011

 15 December  2011

Meanwhile my holdings are bereft  of ETFs  after I sold them all on Friday. But today BlackRock Gold and General fund's unit price showed gains today when it was valued at midday. But that was before Canadian markets opened which saw Eldorado - 3.3% of the fund according to its latest factsheet (October 31- when is a new one due?) -  drop by nearly 13% after acquiring European Goldfields.

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.

Is the gold "spot price" real?

I don't own gold I own the 'spot price' of gold

After taking a look at the prospectus for my ETFS Physical Gold (PHAU) shares I'm fairly sure that I'm not really the owner of gold. Yes the shares are backed by real lumps of the stuff in a vault but the chances are that I’ll never get my hands on it.

In reality the gold backing my PHAU shares is more like collateral - it’s what I have a right to if all else fails. Before that happens though, the prospectus for ETFS Physical Gold says my shares are valued at something called the “spot price” of gold (ETFS said that PHAU tracks the loco London spot market).

So what is this “spot price”?

On the face of it, the construction of the gold price appears a bit random. Adrian Ash at UK online gold and silver market BullionVault told me that the price is not standardised, which means it’s not like tracking the share price of Marks and Spencers for which there is a single price quoted through the London Stock Exchange.

So, in the case of gold, the source of the price is not set in stone. Ash says that the data feed that supplies the free online "spot" chart at BullionVault, where he is the head of research, is not likely to be the same as the data feed that supplies, say, the chart at Canadian bullion dealers Kitco and the prices may be slightly different.

This is because the companies that provide the data feeds can pick and choose the sources of the data. These will be dealers who have agreed to pass on their live buying and selling prices. However Ash points out that any difference in price will be minimal because a dealer who deviates far from the global price will either have everyone knocking on their door… or no one.

In general though, the prices that make up the core of the global spot price come from the big banks listed as the “market makers” for the London bullion Market Association – centre of the world's wholesale physical trade.

These include the likes of JPMorgan, HSBC and to be an official ‘market maker’ an institution promises to offer prices at which they will buy and sell gold at all times during the hours of London trading.

But these banks are global so when trading shuts in London it shifts over to New York.

Wherever the trading is going on, the prices offered are being fed to the likes of Bloomberg and Reuters and other data providers who then compile gold “spot prices” for their clients. To do this they take the mid points between the buying and selling prices offered by each market maker and find the average.

Ash said: “So take note – any "spot" price data you see will fail to show any widening of the spread between buying and selling prices during strong volatility.” So investors should look carefully at the difference between the price they are being offered and the gold spot price.

There are further complications to the foundations of the “spot price” and the extent to which it describes the price of physical gold. To start with, the London market makers are not the only sources of data or the only influence on the gold price.

But during London trading hours they are the biggest players and the deals being done in London are for metal and are supposed to be completed within two days. But that’s not the case in other markets that influence the gold price. Ash said that when trading shifts to the USA the biggest gold market open for business becomes the New York futures market – where promises to deliver gold at a specific date are traded, but the vast bulk of contracts are in fact settled for cash, not metal.

Influences like this are somehow factored into the data feeds for “spot gold” prices supplied to traders.

In contrast to the apparently laissez faire price setting – where there can be minor discrepancies – there is no flexibility about the gold that is bought and sold in the loco London spot market.

This is entirely standardised with approved refiners, vaults and traders. If the gold is in the system it is considered good for delivery and if it leaves the system it isn’t allowed back in without severe checks.

Conclusions: Supply and demand, investor fear, interest rates and the value of the dollar are the engines that drive the gold price. But the gold price itself is the speedometer and it seems sensible to check that it's actually measuring what you want it to measure.

The fact that it doesn’t include spreads - the difference between the price at which gold is bought by market makers and the price at which they sell it – essentially means that gold is will not change hands at this price.

It may be useful to find out more about when and why spreads widen and whether the changes are large enough to let them influence an investment decision.

Also, does anyone monitor the differences between gold price data feeds, particularly in times of crisis? Are there any technical dangers in terms of the gold price?

Gold ETF bestseller for retail investors?

The three most heavily bought shares (by value) were the same as the three most heavily sold shares by investors using Hargreaves Lansdown on Friday. These were Barclays, Lloyds and the iShares FTSE 100 exchange traded fund.

The ETFS Physical Gold ETF (PHAU) was one of the few shares on the top twenty list that didn't also make a showing on the list of shares being dumped at high speed by investors.

On Thursday Hargreaves Lansdown published an interim management statement which said that the number of clients opening accounts had increased but added that it wasn't expecting much action from them: "Whilst uncertainty remains about sovereign debt and default and a possible second recession, it is increasingly likely the retail investor will feel they need more pounds in their pocket and may continue to defer new investment decisions."

It's hard to tell if their buying and selling lists illustrate this prediction, or whether retail investors see gold as a kind of cash.

Also on Thursday the Sterling denominated PHGP was the gold ETF of choice (At close on Friday the spreads for PHGP were bid 10,382 offer 10,385 or 0.028% which were narrower than the spreads for the dollar denominated PHAG $164.09 and $162.3 or 0.12% - I was under the impression it was usually the other way around.)

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.