Euro denominated Gold ETF?

spondoolies

Does anyone know of a Euro denominated physical gold ETF? I'm looking for something similar to the SPDR GLD ETF but without the euro/dollar exchange risk.
Thanks,
Spondoolies

gizmo555

There are many: http://en.wikipedia.org/wiki/Gold_exchange-traded_product

soddy1979

You'll still be exposed to exchange rate risk with a Euro denominated Gold ETF. However, you want to be exposed to exchange rate risk, or you wouldn't be buying a Gold ETF in the first place.

EUR/AU = (EUR/AU)*(USD/AU)

gizmo555

soddy1979 wrote: »

You'll still be exposed to exchange rate risk with a Euro denominated Gold ETF. However, you want to be exposed to exchange rate risk, or you wouldn't be buying a Gold ETF in the first place.

EUR/AU = (EUR/AU)*(USD/AU)

Gold is in effect a currency in its own right. It makes no sense to say that in exchanging Euros for gold you're exposing yourself to a dollar exchange rate risk, or at any rate it's no greater risk than holding Euros in the first place.

soddy1979

gizmo555 wrote: »

Gold is in effect a currency in its own right. It makes no sense to say that in exchanging Euros for gold you're exposing yourself to a dollar exchange rate risk, or at any rate it's no greater risk than holding Euros in the first place.

Sorry, I should have said EUR/AU = EUR/USD * USD/AU

This isn't completely true, because a large portion of the Euro/Gold exchange rate risk is actually made up of Dollar/Gold exchange rate risk. I am attaching a spreadsheet below, which may help explain it.

On the first sheet, I have regressed the EUR/AU exchange rate on two items: 1) the spot price of Gold in USD and 2) the EUR/USD exchange rate. The R square measures how good the model fits, and as you can see it is almost 1, which can be interpreted as almost 100% of movements in the EUR/AU exchange rate can be determined by changes in the spot price of Gold in USD, and changes in the EUR/USD exchange rate.

On the second sheet, I have run a single regression of the EUR/AU exchange rate on just the spot price of Gold in USD. As you can see from this model, the R square, or fit is just 71%.

spondoolies

Hi soddy1979,
Thanks for the work you put into the spreadsheet, so basically it seems that there is no advantage in buying gold in Euros as any fluctuations in the euro price of gold already take into account the euro/dollar exchange rate fluctuations.

soddy1979

spondoolies wrote: »

Hi soddy1979,
Thanks for the work you put into the spreadsheet, so basically it seems that there is no advantage in buying gold in Euros as any fluctuations in the euro price of gold already take into account the euro/dollar exchange rate fluctuations.

I don't think so, unless the EUR/USD exchange rate risk has been hedged. Although you could buy GLD and hedge yourself by buying EUR/USD call options. You would need to match the option maturity to your investment horizon, and the premium for buying the options would eat into your return. Current EUR/USD options, to buy Euros at 1.43 maturing in Jun 2011 will set you back about 7 dollar cents per Euro hedged (or about 4.9%). I'm not sure how feasible this would be for you from a logistical point of view.

Low Energy Eng

Soddy,

If I buy €10k worth of gold at a €1:$1 ratio (for example) so also worth $10k,
a month later i want to sell, the dollar has collapsed in value to half this so the gold is now worth $20k, but the euro stayed steady in vaue...so the $20k is now worth €10k

Am I missing something? Where does the dollar risk come in?
Can you type in the formula bar of the excel sheet how you're working out regression?

gizmo555

Low Energy Eng wrote: »

Soddy,

If I buy €10k worth of gold at a €1:$1 ratio (for example) so also worth $10k,
a month later i want to sell, the dollar has collapsed in value to half this so the gold is now worth $20k, but the euro stayed steady in vaue...so the $20k is now worth €10k

Am I missing something? Where does the dollar risk come in?
Can you type in the formula bar of the excel sheet how you're working out regression?

No, you're not missing anything. Gold is a currency. If you exchange your Euros for gold, the value of gold in dollars is irrelevant to you, unless you may at some stage convert your gold in turn to dollars. If you only ever intend to buy and sell gold in Euros, the dollar price is utterly irrelevant.

Low Energy Eng

gizmo555 wrote: »

No, you're not missing anything. Gold is a currency. If you exchange your Euros for gold, the value of gold in dollars is irrelevant to you, unless you may at some stage convert your gold in turn to dollars. If you only ever intend to buy and sell gold in Euros, the dollar price is utterly irrelevant.

Thats what I thought, but i was trying to get my head around that speadsheet

gizmo555

Low Energy Eng wrote: »

Thats what I thought, but i was trying to get my head around that speadsheet

The spreadsheet is a complicated way of expressing a simple idea - if the price of gold changes in Euro, it will also change by the equivalent amount in dollars, unless the exchange rate between Euros and dollars has itself changed. I think we all knew that . . .

It is just an accident of history that gold is traded in the main international markets in US dollars, it is of no great significance for investors whose base currency isn't dollars.

Overlord

Recently to buy and sell a gold ETF I needed to convert my euros to US dollars and then back again to take the profit. This exchange of currencies was, of course, at a cost.
Wouldn't this cost be avoided if an ETF was euro based?

gizmo555

Overlord wrote: »

Recently to buy and sell a gold ETF I needed to convert my euros to US dollars and then back again to take the profit. This exchange of currencies was, of course, at a cost.
Wouldn't this cost be avoided if an ETF was euro based?

Yes, and this is one good reason for Eurozone investors to buy a Euro denominated ETF. That said, you need also to do your due diligence on the funds you're looking at and also consider, for example,

• what are the fund management costs?
• is the fund actually holding physical bullion or just trying to track the price of gold on paper?
• what is the financial standing and reputation of the fund issuer?