[sorry for the repeat of much of what pugchief just posted]barrett wrote: Totally ignorant about GTU and I don't know what the heck you guys are talking about when you say that GTU is "trading at a discount." Does this ETF really not track the price of gold closely? If so, why hold it? Thanks.
GTU is a closed end fund, not an ETF. It has a fixed amount of gold and a fixed number of shares. It's easy to compute the exact NAV (amount of gold times price of gold divided by number of shares). The shares trade for whatever anyone is willing to buy/sell them for, so can trade at a discount or premium relative to the NAV. The fund publishes this data (including the discount/premium) every day on their website at http://www.gold-trust.com/asset_value.htm .
The amount of gold actually changes occasionally (coincident with the issue of a new block of shares), but very infrequently.
ETFs basically take this model and add several layers of complexity to it. They define a ratio of shares to gold (which slowly dwindles due to their fees) and allow their "authorized participants" (big banks) to trade gold for shares (this creates new shares) or shares for gold (this destroys shares) at this ratio whenever they want. The amount of gold they own and the number of outstanding shares change frequently. You have to look pretty hard, but you can find these numbers on their websites and I think they're updated daily. Because shares and gold are fungible, the share price in the market stays pretty close to its NAV. If it drifts in either direction the authorized participants can make money by buying shares, trading shares for gold, and selling the shares gold on the market, or vice versa.
GLD, IAU, and SGOL are all ETFs. GTU and PHYS are closed end funds.
The tax treatment is different as well. The ETFs are treated for tax purposes the same as owning gold. So you pay the collectibles tax on any profit you make when you sell (just like buying and selling gold coins). GTU and PHYS are both Canadian, and qualify as "passive foreign investment companies". If you file the right form every year you own them (8621) you end up paying long term capital gains.
The bottom line is GTU (and PHYS) don't end up tracking the price of gold as closely as the ETFs - but they're arguable safer (far fewer moving parts, so far fewer ways they can break down) and provide better tax treatment. Also, if you believe in the theory that the major banks (in particular JP Morgan) manipulate the price of gold, the gold in ETFs is available to them to use in this way (JP Morgan is at least an authorized participant, if not the actual custodian for every gold ETF). The gold in the closed end funds just sits in a vault - nobody can use it for anything.
[Edit: buy shares, trade shares for gold, and then sell the gold]