ETFs Stoke Investors' Gold Fever

ETFs Stoke Investors' Gold Fever

New Way to Trade Adds
Luster to Fabled Metal;
Jewelry Demand Drops
By PETER A. MCKAY and DIYA GULLAPALLI
January 5, 2008; Page B1

Gold's place in the financial system dates back centuries, but it is enjoying a modern-day renaissance, thanks in part to new vehicles that allow investors to buy and sell the precious metal as easily as a share of Google stock.

The price of gold fell $3.30, or 0.4%, to $863.10 a troy ounce on the New York Mercantile Exchange's Comex division Friday, but that was after hitting a 28-year high earlier in the week. It is now up 43% from a year ago. Investors have been flocking to it as the outlook for more-conventional investments like stocks and bonds becomes cloudier.

Analysts point to the introduction of exchange-traded funds linked to gold as a potent new catalyst for interest in the yellow metal. ETFs trade on exchanges like stocks, but their performance can be tied to almost anything, from the value of commodities to the performance of stock indexes like the S&P 500 index or the Dow Jones Industrial Average.

The most-active gold ETF -- called streetTracks Gold Shares, trading under the ticker GLD -- now averages about eight million shares a day in turnover, more even than Google Inc.'s shares, which change hands less than seven million times a day on average. GLD's underlying holdings of the precious metal are greater than the European Central Bank's or China's central bank.

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"The single most important thing to understand about the gold price is that it's being driven higher by investment," says Jeffrey Christian, managing director of CPM Group, a commodity-focused financial-services firm in New York. "That investment demand has been pretty broad-based around the world, and it doesn't look like it's close to ending.

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