The CLI Julius Baer physical gold protected fund provides the only way that UK investors can access this ETF with capital protection. The underlying ETF was launched in 2008 and invests solely in physical gold bullion rather than trading in shares of precious metal mining companies.
CLI investors can already access the fund without capital protection, but the company wanted to offer a protected version to investors who are concerned about uncertain market conditions.
The new fund provides 95 per cent capital protection at the end of the five-year term and investors will also receive 100 per cent of the growth in the underlying ETF.
The capital protection is provided by the global investment bank Nomura Bank International, which has been a counterparty to previous Julius Baer structured products. Nomura is experienced in managing the derivatives that are used to provide the capital protection, but as with all structured products of this type, the return of capital is underpinned by the solvency of the counterparty.
Demand for gold is coming from emerging regions such as China and from investors. Production is in decline and capacity is constrained, which could push prices up. Gold prices could also rise either as a result of quantitative easing pushing up inflation or if the recession gets worse because investors use gold safe haven in difficult times. However, prices could fall if the demand dries up.