The Nasdaq Dubai and World Gold Council launched its long awaited gold exchange traded fund this week. The newest gold ETF is both guaranteed Shariah compliant for Islamic investors by Shariah Capital and 100 per cent backed by physical gold.
ArabianMoney.Net spoke to the World Gold Council CEO Aram Shishmanian about the new ETF that is aimed squarely at both local investors who want to buy just one-tenth of an ounce of gold as well as regional institutions and Saudi billionaires that want to invest more than $1 billion.
Q. ETFs have often been criticized as derivative products with no complete assurance that they have underlying asset backing. Will the new Nasdaq Dubai gold ETF be backed by allocated or unallocated gold, that is to say will it be fully redeemable against gold held in a bank account?
A. This is not a derivative product because it is 100 per cent backed by allocated gold held in vaults in London by HSBC, and audited both by traditional and shariah auditors.
It is important to understand the difference between unallocated and allocated gold. The Dubai ETF has allocated gold, so there is no third party acting between the metal and its owner. The ETF certificate is an entitlement to one-tenth of an ounce of gold.
Q. Why would an investor choose to buy the Dubai ETF trading under the ticker symbol GOLD, and not one of the dozen other ETFs trading on global exchanges?
A. We have launched a series of ETFs around the world over the past eight years and have always found that a regional product stimulates new demand. It is also a Shariah compliant gold ETF, the first of its kind in the world, and this was not something that was easy for us to achieve.
This product is for people looking for a secure and efficient way to hold gold, without necessarily taking delivery. It is a clear response to the need to protect wealth at a time of huge economic uncertainty.
Q. Are you sure this is the right time to launch an ETF in Dubai? Why should people be buying gold now, is the price going up?
A. I cannot forecast prices in my job. But the WGC has created ETFs on 12 exchanges over eight years. Today $38 billion of gold is held in these ETFs, or 1,200 tonnes, more than many national reserves.
Before ETFs it used to cost investors about five per cent to get in and out of gold, now it is 60 basis points.
In the GCC region there has been a 40 per cent increase in demand for gold in the past year, and 114 per cent increase in the past four months.
It is an opportune time to launch in Dubai. There is substantial latent demand from investors. Gold is a safe haven, a protection against inflation, a weaker US dollar and third party failures as well as a risk adjustor for investment portfolios.
Gold and bonds are the only asset classes to show a positive performance in the past 12 months. We are seeing a structural shift towards gold as an investment immune from third party failure at a time of systemic risk in the financial sector.
Q. What about price volatility? This has wiped out many smaller investors over the past year, and is proving difficult for the Dubai jewelry sector to manage on a daily basis?
A. All I can say is that over the past year gold has actually been the least volatile asset against other asset classes, other than US bonds.
Gold holders were particularly damaged after the unexpected fall in prices after the failure of Lehman Brothers that caused a domino effect in selling.
But even then gold was acting as it should as an insurer of wealth, and investors were able to liquidate their holdings to pay debts or meet margin calls. It proved its worth as the asset of last resort.
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