By Thom Calandra, CBS.MarketWatch.com
Last Update: 10:42 AM ET May 16, 2003
( The below contains excerpts from this report )

SAN FRANCISCO (CBS.MW) - More than a year after word leaked of a new security that could transform the way North American investors buy gold, the exchange-traded fund is headed to the New York Stock Exchange. As for mechanics, trustees' fees for the proposed NYSE-traded fund are a miniscule expense ratio of 0.12 percent, in keeping with the low fees attached to well-known indexed ETFs such as the Nasdaq 100 QQQs or the S&P 500 on the World Gold Council's filing this week).

There are those who will wonder why the proposed Equity Gold Trust only allows actual redemption of gold from paper to actual bullion in amounts of 10,000 ounces, about $3.5 million worth. The best answer is that not many individuals will care about redeeming their gold paper. Indeed, Americans (and more than a few Canadians) have little inclination to actually hold gold and pay insurance and storage fees for the privilege. Larger investors, including the hedge funds whose bets often precede a monstrous move in a stock or bond, are more likely to want that gold in their coffers and not just on paper.

Each of the Equity Gold Trust's shares will represent a tenth of an ounce of actual gold and not some derivative formula for the gold price. At current prices, the shares would trade at about $35 each. The physical gold as represented by the daily purchases and sales of investors in the proposed fund, will be deposited with Hong Kong Shanghai Bank in London.

The real question, for those looking to the day when Equity Gold Trust begins trading on the NYSE under the ticker symbol GLD, is this: Can the creation of a product convince investors to go where they have not gone before? After all, Americans have little in the way of gold mining stocks or actual gold in their portfolio.

U.S. investment firms have been slow to include gold in their model asset allocations, even with the price of the metal rising about $100 in the past two years to its current $355 an ounce. Yet in the course of the past 12 months, more than one gold mining executive has told me they see the price of gold rising in the short term to $600 an ounce after the launch of the NYSE-traded ETF. What is the short term? A year or less.

The World Gold Council in its filing says it will scrap the new fund if gold in the trust's London-based vaults amounts to less than 1 million ounces at the end of a year.

"For the first time in history, investors of all descriptions will be able to invest in physical gold through brokerage firms and other mainstream financial market channels," Hathaway says. "The ETF will eliminate the past inconveniences, uncertainties and bureaucratic hassles that have long stymied a free flow of capital from retail and institutional investment portfolios into the physical metal."