Hong Kong sees its first ETF that tracks global gold mining stocks

PUBLISHED : Friday, 18 November, 2016, 6:01pm
UPDATED : Friday, 18 November, 2016, 6:01pm

Hong Kong has welcomed its first exchange traded fund (ETF) that tracks gold mining companies around the world, though investors were warned of increased volatility as gold mining stocks see trading that is typically three times sharper than gold prices.

XIE Shares FTSE Gold Miners ETF was launched on the city’s exchange on Friday by XIE Shares, the ETF business of Enhanced Investment Products Limited (EIP). It tracks 35 global gold mining companies under the FTSE Gold Mines Net Tax Index.

Hong Kong has three gold-related ETFs which all track gold fixing prices in London, including SPDR Gold Trust, Value Gold ETF and Hang Seng RMB Gold ETF.

EIP chief executive Tobias Bland said that gold mining stocks move with the gold price but fluctuate three times as much, illustrated by the fact that the FTSE Gold Mines Net Tax Index has jumped 61 per cent this year while gold spot prices have risen only 16 per cent.

The new ETF has a total expense ratio of 60 basis points, more than SPDR Gold Trust which has a 40 basis points gross expense ratio due to the extra cost of holding gold mining stocks.

Canadian gold miners make up 49.7 per cent of the ETF allocation, followed by 13.7 per cent in the United States and 13.6 per cent in Australia. China’s Zhaojin Mining Industry and Zijin Mining Group are also included. The ETF represents an exposure to gold deposits worth US$900 billion.

Gold is seen as a hedge against inflation or deflation, especially when political events like Brexit and the US elections lead to more volatility and uncertainty in financial markets, Bland said.

The GDX VanEck Vectors Gold Miners ETF, which is one of the largest and most liquid ETFs globally with US$10 billion in assets under management in the US, has seen trading volume rising five times since the US presidential election, Bland said.

Gold has yet to benefit from rising inflation expectations, but we still think it will
Julian Jessop, Capital Economics analyst

“The DXY [US dollar index] has just reached the all-time high, which has a reverse correlation with gold price. If you believe the DXY is going down, then the gold is going up,” Bland said.

US dollar strength has dragged gold to a five and half month low at US$1,204.96, after reaching US$1,300 last week thanks to Donald Trump’s unexpected win in the presidential election.

George Soros’ hedge fund Soros Fund Management had sold off its stake in the SPDR Gold Trust before September 30, after disclosing a US$30.4 million holding in the second quarter, according the fund’s latest filing.

However, gold bulls believe it is still too soon to give up on the precious metal. Capital Economics analyst Julian Jessop said gold is likely to remain in strong demand as insurance against many potential shocks, whether economic, financial or geopolitical. Meanwhile, expectations of a US interest rate rise in December have been fully priced in by the market and therefore will not hurt gold prices more.

“Gold has yet to benefit from rising inflation expectations, but we still think it will. What’s more, the upside for US real yields will continue to be capped by slower potential growth and continued loose monetary policy elsewhere,” Jessop said.