Investors seek gold ETFs for long-term exposure

Investors are using ETFs to gain exposure to gold on a long-term strategic basis, rather than simply as a short-term hedge, industry professionals say.

World Gold Council investment managing director Jason Toussaint says the industry is experiencing a paradigm shift as investors view gold as a viable long-term asset class, rather than just a short-term safe-haven investment.

He says: "With the latest shocks to global markets, currencies and equities, people understand the impact and effects of the financial crisis are very far from over.

"There is sometimes a tactical move into gold, but the greater trend, borne out by the data, is increasing buying of gold for the long-term, rather than as a short term hedge."

ETFs provide an efficient vehicle through which to access gold, overcoming a range of investment issues

Toussaint says: "As we store the gold on behalf of investors, we are in a position to provide exceptional pricing over the long-term. As these funds are traded on exchange, they have efficient pricing and track the spot price of bullion very closely through the arbitrage mechanism."

In contrast to ETFs, purchasing gold bars or coins is an over-the-counter transaction, while there are often high fees in acquiring, storing and insuring the bullion.

ETF Securities' (ETFS) head of research and investment strategy Nicholas Brooks says: "World gold ETF assets now stand near $70bn, with annual purchases in 2009 outstripping gold coin and bar purchases for the first time. Central banks became net buyers of gold last year for the first time in 13 years and it appears this has continued into 2010."

Brooks says investors will continue to search for assets that hold value despite potential currency depreciations and high inflation, especially if major economy fiscal and debt problems remain unresolved.

He adds: "Gold stands out as the ultimate alternative store of value, but silver, platinum, palladium and other commodities also have these properties."

Castlestone Management has forecast gold to reach $2,400 in the next decade.

The firm's CEO Angus Murray says: "In our view, gold will continue to benefit from the combination of reaching a new high in euro terms, sliding global equities, the situation in Greece, the European Central Bank's reluctance to buy Greek bonds, and soaring demand for gold bars."