GOLD ETF

POSTED BY Santosh ON February 28, 2012 4:40 pm COMMENTS (6)

Why is there a difference in price of GOLD ETF and the MCX value to GOLD?

Also some times the price of Gold drops but the price of GOLD ETF has increased, why does this happen?

Is there any place where we can compare the GOLD Vs GOLD ETF values.

Thank you.
Santosh

6 replies on this article “GOLD ETF”

  1. BanyanFA says:

    Hi All,
    I did a lot of research on how ETF’s work and I can confirm that Santosh is right. It is basically due to the way ETF structure is created and operates. I have written a very detailed article on this http://insight.banyanfa.com/?p=635.

    And this is true for all ETFs, not only Gold ETFs. There is a small table at the bottom of the article mentioned in the link above where you would see the difference between the NAV of the ETF and it’s quoted value.

    Regards
    BFA

  2. Dear Santosh, I feel you are comparing the future price of gold on MCX with the current price of Gold ETF.

    Please check & confirm.

    Thanks

    Ashal

  3. bharat shah says:

    i think , the etf gold unit value will diminish at rate of @1% p.a. till you hold it due to expense ratio by the AMC. SO i think, the price of etf unit would be lower compared to mcx gold price on long run.

  4. BanyanFA says:

    Santosh,
    I am really surprised to read that you spotted that ETF prices were not in correlation with the MCX Gold prices. ETFs are positively correlated with Gold prices quoted on MCX. If they were negatively correlated as you have mentioned, then there would be an opportunity to take advantage by arbitrage.

    Regards
    BFA

    1. Santosh says:

      Hi BanyanFA,

      If you see price of gold on MCX Feb 29, 14:37 it is 28830.00 down (Rs -45.00) or (-0.16%)
      while the price of BEES GOLD ETF on Feb 29, 14:41 it is 2747.99 Up (Rs 11.97) (+0.44%)

      I am not sure if I am comparing the right numbers, and not comparing apples to oranges.

      May like Ashal jauhari mentioned it might be due to mis match in demand vs supply.

      My doubt was in case in future if I was to sell the GOLD EFT units to purchase physical gold what is the kind of price different between GOLD EFT price and Physical gold that we can expect.

      Thank your for sharing your thoughts.

  5. Dear Santosh, please do understand, GOLD ETFs are traded just like any other stock in the market. So there may be a situation due to mis match in demand & supply that the price of GOLD ETF is more or less than the physical Gold.

    Thanks

    Ashal

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