Behind Gold's New Glister: Miners' Big Bet

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"The innovation that opened gold investing to the masses was hatched in an act of desperation."

The innovation that opened gold investing to the masses and helped spur this year's record-breaking bull market was hatched in an act of desperation by a little-known gold-mining trade group.

The World Gold Council, created to promote gold, was fighting for survival. Its members—global gold-mining companies—were frustrated with the council's inability to stem two decades of depressed prices and find buyers for a growing glut of the yellow metal. What the council eventually managed to create in those dark days surpassed its wildest dreams: SPDR Gold Shares, the exchange-traded fund launched in November 2004. The fund, known by its ticker symbol GLD, has ballooned into a $56.7 billion behemoth.

Today, GLD is the fastest-growing major investment fund ever, according to research company Lipper Inc., and one of the most active gold traders in the market. Its presence has helped gold—which settled down 0.33% in New York trading Wednesday, at $1,372.90 a troy ounce—triple in price in recent years to fresh all-time highs this month.

But skeptics argue GLD could become a Godzilla-like beast if the gold rally reverses sharply. They say its buying has already turbo-charged gold prices, exposing the market, and legions of small investors, to a rapid fall. Smaller copycat funds add to the risk.

"We tell our clients to watch out for it, because it's there, and it's a real risk," said Jeffrey Christian, founder of CPM Group, which advises major investors worldwide on gold.

The success owes much to timing. The council launched the fund as interest in gold was picking up. "It's got the gold price up," said Nick Holland, chief executive of Gold Fields Ltd., a major mining company and a member of the gold council. "That's got to be good."

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