Goldman Sachs buys a gold ETF

One of the most influential financial institutions has made a bet on gold. Not a directional trade as it were, but rather a strategic purchase of a gold trading vehicle and investment conduit.

The institution in question aptly enough is Goldman Sachs whose asset management division has purchased the Perth Mint Physical Gold ETF for USD 514 million.

The acquisition will sit amongst Goldman’s existing ETF operations which have some USD 19.0 billion of assets under management. As we might expect the ETF will be renamed as the Goldman Sachs Physical Gold ETF and would-be investors and traders can expect to gain exposure to the yellow metal for around 18 basis point above spot prices.

The deal which was first mooted by Goldman in September this year completed this week and Michael Crinieri, managing director and global head of ETFs at the US investment bank said:” We are pleased to complete this transaction and enter into this market,” He also intimated size of Goldman’s $1.80 trillion asset management business would provide value and economies of scale to investors in the Gold ETF. The 18 basis point management fee would seem to bear that assertion out.

Given the turmoil in the markets seen in 2020 one might have expected Gold to have performed well and it did not disappoint. With London spot gold registering gains of 23.20% year to date as of Wednesday evenings close.

Those gains were made as investors looked to hedge themselves from volatile equity markets and the anticipated effects of rampant inflation. Thought likely to be the result (by gold bugs) of the fiscal and monetary stimulus measures deployed by governments and central banks this year. However, that inflation failed to materialise causing gold prices to peak in early August from where they have largely drifted lower since then.

Goldman’s purchase of physical gold ETF is interesting and reignites a debate about the best way to own the precious metal. Investors who believe that the metal acts as a hedge against inflation and the devaluation of fiat currencies caused by a decline in purchasing power. Want access to physical gold. Rather than paper or certificated variants. Which, of course, entail the type of counterparty risk those investors are trying to avoid.

However, owning physical gold in any great quantity creates its own issues around security and transport etc. Gold bullion could not exactly be described as being portable. An ETF that is itself backed by physical holdings of gold that are stored in a bank vault is seen as a compromise solution by many.

It’s interesting to note that just as Goldman Sachs Asset Management is getting into gold another asset manager has been taking profits and investing those elsewhere.

The Ruffer Investment Company a fund that has an emphasis on capital preservation has redeployed some of the profits it made in gold into Bitcoin. Ruffer has reduced their gold weighting and have put 2.50% of their portfolio into the cryptocurrency in a move it described as a defensive measure.

Bitcoin is seen as a being a differentiated alternative investment and the digital currency has posted gains of more than 160% in 2020 busting through its previous all-time highs to test towards $23,000 a coin.

Ruffer’s switch from gold into Bitcoin was made during November and they could now be sitting on gains of around 20% already. Which sounds like the sort of return that Goldman and its clients would be interested in.