The influence of gold ETFs on
Gold stocks have historically traded, and continue to trade, at inflated multiplesrelative to the net asset value of the holding company and the rest of themarket. Therefore one of the most vexing questions for investors in metalequities seeking to make a ‘buy’ case on a gold stock is the valuation of thestock and the extent to which the premium makes the stock expensive relativeto other gold investments.The purpose of this research was to identify how the recent development of theadvent of gol d exchange traded funds (ETFs) on major stock exchanges aroundthe world could influence analysts’ recommendations for direct investment ingold in favour of South African (SA) gold stocks at a premium.Semi-structured interviews were conducted with a total of 28 gold analystsbased both in SA and in New York City, United States of America (USA). Acontent analysis was carried out on the data gathered during the interviews.The responses were presented as frequency counts of the concepts extractedfrom the interview transcripts.The findings of this research suggest that the impact of gold ETFs on analysts’recommendations is substantial. The study suggests that investing in gold ETFscan be an attractive alternative way of participating in gold price movementswith lower risk than gold stocks.The conclusion of this research suggests that it can be argued that the adventof ETFs does take away some of the unique appeal that gold stocks previouslyheld, but that gold ETFs are a different type of investment from gold stocks.Whereas gold ETFs appear to have more investment appeal, SA gold stocksare trading options with inherently higher risk, but which potentially offer greaterreturns. The demand for higher risk investments like gold stocks is not likely todissipate given the greater leverage to the gold price that they offer
Year of publication: |
2011-06-02
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Authors: | Nel, Beyers Bosman |
Subject: | Exchange traded funds | Gold stocks |
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