The Market for Gold: Spdr Gold Shares and Beyond

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This case is used in Darden's second-year elective, Financial Institutions and Capital Markets, and would work well in courses covering exchange-traded commodities funds. A teaching note for this case is pending publication. At the end of May 2012, Aram Shishmanian, CEO of the World Gold Council (WGC) was considering alternatives to promote gold as an investment asset. The WGC was the sponsor for SPDR Gold Shares, which was launched in 2004 and had become the most successful commodity-based exchange-traded fund, reaching a market value of around $64 billion. This had exceeded expectations, but allocations to gold remained small among U.S. long-term institutional investors. There would also an expected shift of wealth to countries such as China and India in the coming decade. Shishmanian was considering which gold investment vehicles would be best for the WGC to promote in the United States and other markets going forward. Excerpt UVA-F-1685 Rev. Jul. 19, 2013 THE MARKET FOR GOLD: SPDR GOLD SHARES AND BEYOND Sitting in his London office on May 31, 2012, Aram Shishmanian, CEO of the World Gold Council (WGC), was preparing for the upcoming June board meeting in Toronto, Canada. The WGC was the market development organization for the gold industry, and the council's mission was to stimulate and sustain demand for gold. The board members—chairmen and CEOs of leading gold mining companies—were flying in from Australia, Peru, South Africa, the United Kingdom, and the United States to attend the meeting at which Shishmanian and his team were to present the results of a strategic review of the activity of the council and share their recommendations for the coming three to six years. The WGC's biggest initiative to date, the first-ever physically backed gold exchange-traded fund (ETF) listed on the NYSE, the SPDR Gold Shares (GLD), which launched in 2004, was reaching a market value of around $ 64 billion. This went well beyond expectations, but allocations to gold remained small among long-term institutional investors. At the upcoming board meeting, what should Shishmanian propose that the WGC do next to stimulate gold demand among investors? What investment vehicles could the WGC help develop in the United States and beyond? The spectacular growth of GLD holdings had attracted attention, but many front-page news articles on gold these days were focused on gold prices. Gold's long-standing role as a safe-haven asset had been brought back into the spotlight with the European sovereign debt crisis and the expansionary U.S. monetary policy following the 2008 financial crisis. Gold prices reached a peak of more than $ 1,900 per ounce in August 2011, before dropping slightly (Figure 1). Some analysts were questioning whether gold was “losing its luster as the currency of last resort,” yet a recent Goldman Sachs report argued for a positive outlook for gold. Figure 1. Gold spot prices, January 1979–May 2012 (U.S. dollars/troy ounce London PM Fix). . . .