The Securitization of Commodities:Crossing A Gold (Or Silver) Line In The Sand

Summary

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Commodity Futures and Options Regulation. Jurisdictional Issues Between Commodities and Securities Transactions. Are Gold ETFs Securities?. Are Gold ETFs Futures?. Gold ETFs - Cash Market Transactions. Conclusion.

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The Securitization of Commodities:Crossing A Gold (Or Silver) Line In The Sand

Elizabeth L. Ritter is Assistant General Counsel at the United States Commodity Futures Trading Commission. She is also an adjunct professor at the Washington College of Law. The author wishes to thank Michael Penick, Industry Economist, Office of the Chief Economist, Commodity Futures Trading Commission, for providing data for this article. The opinions expressed in this article are solely those of the author, and are not intended in any way to represent the views of the Commission.

IN RECENT MONTHS, Barclays and the World Gold Council have begun trading exchange-traded funds (ETFs) based on the rise or fall in the price of gold. From a marketing perspective, the marriage of ETFs and gold was made in heaven. ETFs have been publicized as an investor´s dream: they can be bought or sold on margin; unlike mutual funds they can be traded throughout the day; and they benefit from certain tax advantages over mutual funds.1 And gold is, well-gold. It glitters, it´s glamorous, it´s global. Gold prices skyrocketed through the fall of last year to reach a high of over $450 an ounce at the end of 2004, enticing virtually everyone to play the gold market. It?s solid, reliable, and in a bear market it frequently becomes the investment of choice-as Jill Leyland, an economist at the World Gold Council states, "Bad news is good news for gold."2 And commodity markets generally are hot, both onand off-exchange, enjoying record volumes in recent years.3

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