areexchange-traded funds(ETFs),closed-end funds(CEFs) andexchange-traded notes(ETNs) that aim to trackthe price of gold. Goldexchange-traded productsare traded on the majorstock exchangesincludingZurichMumbaiLondonParisandNew York. As of 25June2010, physically backed funds held 2,062.6 tonnes ofvaulted goldin total for private and institutional investors.Each gold ETF, ETN, and CEF has a different structure outlined in itsprospectus. Some such instruments do not necessarily hold physical gold. For example, gold ETNs generally track the price of gold usingderivatives.

The first gold exchange-traded product was Central Fund of Canada, aclosed-end fundfounded in 1961. It later amended its articles of incorporation in 1983 to provide investors with an exchange-tradable product for ownership of gold and silver bullion. It has been listed on theToronto Stock Exchangesince 1966 and theAMEXsince 1986.2

The idea of a gold exchange-traded fund was first conceptualized byBenchmark Asset Management Company Private LtdinIndiawhen they filed a proposal with theSEBIin May 2002. However it did not receive regulatory approval at first and was only launched later in March 2007.3The first gold ETF actually launched wasGold Bullion Securities, which listed 28 March 2003 on theAustralian Securities ExchangeGraham Tuckwell, the founder and major shareholder ofETF Securities, was behind the launch of this fund and enlisted N.M. Rothschild & Sons (Australia) Ltd, Citibank and Deutsche Bank as market makers on the ASX.4

Typically a commission of 0.4% is charged for trading in gold ETFs and an annual storage fee is charged. U.S. based transactions are a notable exception, where most brokers charge only a small fraction of this commission rate. The annual expenses of the fund such as storage, insurance, and management fees are charged by selling a small amount of gold represented by each share, so the amount of gold in each share will gradually decline over time. All gold ETFs in the United States have an annual expense ratio between .25% and .4%.citation neededIn some countries, gold ETFs represent a way to avoid the sales tax or the VAT which would apply to physical goldcoinsandbars.

In the United States, sales of a gold ETF are treated as sales of the underlying commodity and thus are taxed at the 28%capital gainsrate for collectibles, rather than the rates applied toequity securities.5

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