Proponents of commodity Exchange Traded Funds insist gold is just the beginning

Mar 01, 2010 | 06:29 AM | Anne Riley

LONDON: When Graham Tuckwell developed the world's first gold exchange-traded fund (ETF) in 2003, its prospects seemed grim. Commodities were out of style, gold was trading below $350 an ounce and the concept of gaining direct exposure to metals without trading derivatives or taking physical delivery was, at best, inventive—and, at worst, downright unnerving.

What a difference a few years can make. Once the stuff of institutional investors and high-end financiers, commodity ETFs are today popping up in portfolios of every size, and their popularity continues to climb. According to data from the National Stock Exchange, commodity ETFs and ETNs (exchange-traded notes)—a structurally different but similar product to an ETF—held $70.39 billion in assets at the end of January, up more than 70 percent from $41.31 billion a year earlier.

"To be honest, we had no idea it was going to take off in the way it did," Tuckwell, chairman of Europe-based ETF Securities Ltd., said. "We had a concept of what might happen and we had some argument as to why people should buy it, but had I known that just the gold market itself was going to be, what, $50 billion? Even the World Gold Council"—which Tuckwell said endorsed the product at the time of launch—"they weren't 100-percent sure how much it was going to take off and in what period of time."....