Gold fever in 2020 means ETFS

In the 19th century California gold rush, the surest way to a fortune, according to Mark Twain, was to be in the “pick and shovel business.” If 2020 gold fever has an equivalent, it’s the ETF business.

Exchange-traded funds (ETFS) backed by physical gold and silver accumulated more than $50 billion of bullion this year. ETFS now hold more gold than every central bank with the exception of the Federal Reserve. That’s generated windfall fees for ETFS and has been a boon for everyone involved in the business of servicing those enormous hordes of shiny metal. That includes the financial firms that provide the funds to investors, through to the banks and security firms responsible for storing billions of dollars worth of gold and silver beneath the streets of London.

“At these times, it’s a very good business to be in,” said George Millingstanley, chief gold strategist at State Street Global Advisors, the marketing agent for the largest gold ETF, SPDR Gold Shares or GLD. “There’s no question in my mind that ETF demand is driving gold right now.”

ETFS typically charge fees as a percentage of the value of their assets. With investors adding to their holdings as spot gold soared to a record above $2,075 an ounce this month, earnings have benefited from a double boost. Total fees for the top

Exchange-traded funds backed by physical gold & silver accumulated more than $50 billion of bullion this year

10 gold ETFS, based on current prices and holdings, are about $610 million a year, according to a Bloomberg News calculation; while for the top five silver ETFS the figure is around $110 million. Investors have bought more silver through ETFS in the first eight months of the year than was produced by the world’s 10 largest miners combined last year.

GLD is delivering some $300 million of fees a year at current holdings and prices. That’s good news for State Street and also for the World Gold Council — a mining industry-backed group that helped create the ETF — as both take a cut of those fees.

It’s also benefited the few big banks — principally Jpmorgan Chase and HSBC Holdings — that hold gold and silver on behalf of the ETFS in underground vaults, behind foot-thick reinforced doors.