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Phgp - Wtf Is Wrong With This Gold Etf

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PHAU.ISE / PHGP / ETFS Metal Sec Ltd Physical Gold whatever it is called.

I bought back on 26/03/09 when I believe gold was under $900. Now gold is up over 10% this ETF is down 7%

I'm not one to squeal when I make a bad decision and lose money but I am perplexed how an ETF can be this out of kilter with the underlying commodity

Here's the chart:

http://www.google.co.uk/finance?q=LON%3APHGP

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PHAU.ISE / PHGP / ETFS Metal Sec Ltd Physical Gold whatever it is called.

I bought back on 26/03/09 when I believe gold was under $900.

That was a pretty bad time to buy dollar-denominated assets. You were about 2-3 weeks past the worst, but still ...

$900 at $1.40 is £643. $1000 at $1.60 is £625.

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Ah!

I remember now. I bought the sterling ETF as I thought the GBP was toast and I'd be getting the double whammy!

I'd completely forgotten how low the £ went against the $

Also I imagined that gold was strengthing more than the dollar weakening. Oh well

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Also some ETFs close in and out every single day which can distort pricing. You don't necessarily just get the same exposure as being long over time.

For what it's worth I think the GBP is about to get killed again back to the 1.50-1.55 level so you will hopefully do a bit better. It's a good trade long term.

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Also some ETFs close in and out every single day which can distort pricing. You don't necessarily just get the same exposure as being long over time.

For what it's worth I think the GBP is about to get killed again back to the 1.50-1.55 level so you will hopefully do a bit better. It's a good trade long term.

Each share of the ETF (PHAU and PHGP are the same shares, just with a different name). The difference is that PHAU is quoted in US$, whereas PHGP is quoted £. They are the exact same shares, whichever you buy (they have the same unique ISIN number) - the only difference may be how the broker handles the payment (e.g. they may charge you a currency change fee if you buy/sell PHAU), but most broker's I've come across will automatically translate an order for PHAU into an order for PHGP to save you the currency exchange fee.

The PHAU/PHGP ETF is tracking exactly as it should. There is no irregularity in the pricing. The effect you are seeing is due to the fact that the price of gold has decreased by about 7% (when measured in £). Remember, 1 share of PHAU/PHGP corresponds to approx 0.1 oz of gold in a secure vault - such an ETF cannot go out of kilter, because someone would just buy up loads of shares, and exchange the shares for a bar withdrawn from the vault, if the shares were priced too low (or if the price went too high, they'd buy a gold bar, deposit it in the vault in exchange for freshly printed shares, and then sell them).

Certain ETFs, which are leveraged or short- do suffer a degree of 'fade', where the price of the ETF progressively falls below the value it is designed to track. This is due to the way in which these funds work in order to allow you to short or make leveraged purchases (however, the only way to achieve this aim, is for the fund manager to buy high, sell low on a daily basis - which seriously cripples the fund).

ETFs that track commodities by using futures contract (e.g. oil) may sometimes 'fade', but this depends on the pricing of the relative futures contracts. If the price of oil 2 months away is more than oil next month, then the funds will fall below their tracking point (oil is priced this way now) - however, if oil 2 months away is cheaper than oil next months, the funds will rise above their tracking point (this happened in 2007 and 8, making these ETFs spectacular performers).

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