Before investing in the Gold ETF, I would like to learn more about its share price. I read this on the AMFII website about Gold ETF.
One Gold ETF unit is equal to 1 gram of gold and is backed by physical gold of very high purity.
When I look at the Gold ETF, for example, AXISGOLD, the share price currently stands at 62 rupees today.
In the market, 1 gram of 24 carat gold costs around 7100 and 22 carat around 6600 rupees today.
Can I assume 1 unit of Gold ETF means 1000 Gold ETF shares? In that case, (1 gram price) / 1000 is actually not matching share price of 62 rupees as of today.
I would like to know what’s the relation of Gold ETF share price vs actual gold price. And how the share price is keeping up with the actual price. Helping me understand this is appreciated.
the relationship between a gold etf share price and the actual gold price can be complex and might not be directly proportional due to several factors.
each unit of the gold etf is backed by physical gold (underlying asset). typically, etfs are structured so that 1 unit corresponds to a specific amount of gold, often 1 gram. however, this can vary depending on the etf structure and pricing. the share price of a gold etf (like axisgold) is influenced by the price of gold but is not necessarily a direct 1:1 reflection. instead, the etf share price is determined by several factors including:
the price of gold per gram.
management fees and other expenses of the etf.
market demand and supply for the etf shares.
potential tracking errors or inefficiencies in the etf.
the terminology can sometimes be confusing. a “unit” of a gold etf generally refers to a fraction of gold (e.g., 1 gram). shares are the traded entity on the stock exchange and their price reflects the value of the underlying assets divided by the total number of shares issued. if the etf states that 1 unit equals 1 gram of gold, then the market price of 1 share/unit should theoretically align with the market price of 1 gram of gold, adjusted for the factors mentioned above. in your case:
gold price per gram: 7100 inr for 24 carat and 6600 inr for 22 carat.
axisgold etf share price: 62 inr.
given this large discrepancy, it’s clear that 1 share of axisgold does not equate to 1 gram of gold. instead, the share likely represents a much smaller fraction of a gram of gold.
let’s assume 1 unit of the gold etf represents a fraction of a gram, say 0.01 grams of gold.
if 1 gram of gold is 7100 inr, then 0.01 grams would be 71 inr.
this is closer to the 62 inr share price, but still not exact due to fees and market variations. the exact relationship should be specified in the etf’s documentation or somewhere else, check with amc. it might state that each share represents a fraction of a gram (like 0.01 grams or another specific fraction). the discrepancy can also be influenced by the etf’s management fees, storage costs, and other expenses.
net asset value (nav): the nav of the etf is the total value of the gold held divided by the total number of shares outstanding. the nav provides a close estimate but might not always match the market price due to trading dynamics.
the market price this can fluctuate based on demand and supply for the etf shares, sometimes leading to a premium or discount relative to the nav.
so the share price of a gold etf like axisgold is not directly equal to the price of 1 gram of gold but represents a fraction of a gram. this fraction is determined by the etf structure and should be detailed in its prospectus or key information document. fees, market demand, and supply dynamics can also cause the share price to deviate from the nav, which is based on the actual gold price. to fully understand the specifics, reviewing the detailed documentation provided by the etf issuer is crucial.
This was true at some point of time, but is no longer true now. Each ETF has selected their own criteria for each unit of ETF.
Do not try to correlate ETF price directly to unit of gold
ETF tracks gold return. So ETF price will increase in same proportion as gold price.
Eg. if gold price today is 7000 and ETF is quoting at 60. Let us say, after a year.
Gold price is 7700 (10% increase) then ETF price will be close to 66 (10% increase)
In reality it will be slightly less than 66 because of fund expenses and tracking error.