The grandaddy of gold ETFs turns 20. On November 18, 2004, I appeared on the New York Stock Exchange floor and instead of giving my usual report on stock movers, I was surrounded by two large guards protecting something very valuable: gold bullion bars, nearly $600,000 worth at the time. I was introducing a strange new product, with the awkward name of “StreetTRACKS Gold Shares ETF,” and the trading symbol GLD. “Normally I talk about the stock market; today we’re going to talk about something totally different,” I said. “I’m going to talk about this: this is a gold bullion bar. It’s 25 pounds. It’s worth about $180,000, and I’ve got three of them here along with a lot smaller amounts of gold, as well as these two burly guards I’ve been married to for the last half hour. Why am I talking about gold today? Because finally, a gold ETF is available. Today, for the first time, thanks to the World Gold Council and State Street, you are able to buy gold just like it’s a stock.” The GLD, now known as the SPDR Gold Shares , represented a quantum leap in making gold more widely available. Investors who wanted to own gold had limited choices up until then. They could own gold bars or gold coins, but storage was not an easy matter. They could own gold futures, but that involved another layer of complexity. They could own gold mining stocks, but there was an imperfect relationship between gold and gold miners. The GLD changed all that. It was the first commodity exchange traded fund in the U.S. Equity-based ETFs had been around in the United States since 1993, when State Street Global Advisors launched the S & P 500 Trust ETF (SPY), but commodity-based ETFs were a tougher nut to crack. In this case, the gold was held in vaults in London by a custodian. It could be bought and sold in a brokerage account, and even traded intraday. It tracked gold prices well though, as with all ETFs, there was a fee, currently 40 basis points (0.40%, or $4 for every $1,000 invested). Changed gold market, opened up ETF business The timing of the GLD could not have been more fortuitous. Gold had been outperforming the S & P 500 since the dot-com bust began around mid-2000. For the next several years, with the exception of a brief pause in 2008, gold went almost straight up, from the low $400s to $1,900 by September 2011. Investor interest in the GLD exploded. Shares outstanding, the primary indicator of flow of funds and investor interest, went from 33 million at its inception to 448 million at the end of 2012. It was one of the greatest successes in the still-brief history of ETFs, and it was the start of a wave of non-equity ETFs. The first currency ETFs came in 2005, followed in 2006 by the first crude oil ETF, the United States Oil Fund (USO), and the first leverage and inverse products in 2006. The first bitcoin ETFs debuted earlier this year. Changing investor base key to gold records Why has gold recently hit an historic high? Much of it has to do with a change in who is buying gold. When the gold ETF was intrduced 20 years ago, there was a very small investor base for gold. Most of the gold demand was in jewelry, particularly from consumers in India and China: Gold demand: 2004 Jewelry: 80% Investments 10% Industrial 10% Source: State Street Global Advisors Today, jewelry demand from consumers in China and India remains strong. China consumers in particular have been strong buyers of gold, thanks to a weak China stock and property market and a listless economy in general. But thanks to gold ETFs, the investor base (those who want to own gold bars or coins or ETFs) has dramatically expanded, with investors now accounting for about a quarter of all gold demand: Gold demand: 2024 Jewelry 50% Investments 25% Central banks 15% Industrial 10% Source: State Street Global Advisors Another base of support for gold has been central bank buying, now 15% of demand, as central banks havesought to diversify their reserves. George Milling-Stanley, who created the GLD when he was at the World Gold Council and is now chief gold strategist at State Street Global Advisors, noted that central banks are seeking “to reduce over-concentrations in current global reserve currencies (FX reserves) like the U.S. dollar and the euro.” The central banks of Turkey, China and India are among the largest buyers . That base of gold buyers, be it for jewelry, investment or central bank purchases, are all motivated by the need to diversify, and by gold’s historic role as a store of value. Some are also motivated by a belief that gold is a hedge against inflation. Gold’s role as an effective inflation hedge has been hotly disputed by some market strategists, with many noting that while gold did well during the inflation of the 1970s, its performance since then as an inflation hedge has been lackluster . Still, many gold investors are true believers in its potential as an inflation hedge. “The potential for stubborn inflation is possibly the greatest risk to macro[economic] stability, but also one of the largest potential opportunities for gold prices moving forward,” Milling-Stanley said in a recent report. Headwinds for gold High prices for gold create a problem, particularly when there is suddenly an increased risk appetite for stocks following the Trump victory. It means gold investors are incentivized to sell their high-priced gold and put money into a stock market that looks like it has more room to run. Milling-Stanley call this the “gold recycling trend: high prices incentivize investors to lock in gains and reposition elsewhere — namely high beta growth stocks based on fund flows.” That is exactly what has happened: gold hit an historic high in the weeks before the election but has since sold off about 15%. Other headwinds: a stronger dollar (gold is priced in dollars), and rising bond yields (gold does not generate any income in the form of interest or dividends). GLD and its competitors Today, GLD is far and away the largest gold ETF, with $73 billion in assets, derived entirely from holding more than 28 million ounces in gold bars . Still, even GLD is not immune to competitive pressures. It has spawned a wave of competitors, including the iShares Gold Trust (IAU), which charges a lower fee of 25 basis points (0.25%, or $2.50 for every $1,000 invested). In 2018, State Street itself launched a lower-priced fund, the SPDR Gold MiniShares Trust (GLDM), which also charges 25 basis points and has also seen significant inflows. It might seem odd to launch a competitor to your own product, but in the dog-eat-dog ETF world, it’s not uncommon at all. GLD has also spawned competitors seeking to take advantage of one quirk in GLD: investors can only redeem their shares for cash, not for gold itself. In 2014, Van Eck launched the VanEck Merk Gold ETF (OUNZ), which provides the option to redeem shares for physical gold , including gold coins and bars. It too has seen significant inflows since its launch. Initial hesitation to promote GLD Oddly, George Milling Stanley, who spearheaded the creation of the GLD at the World Gold Council, was supposed to join me at the NYSE on the day it launched in 2004, but backed out over fears that that the SEC might view the World Gold Council’s promotion of the ETF as a violation of securities law. They were afraid of promoting their own fund, on the day it went public. We’ve come a long way since those days. Note: George Milling Stanley, now Chief Gold Strategist for State Street Global Advisors, will be on CNBC’s Halftime Report Monday at 12:35 PM, and streaming on ETF Edge at 1:10-1:30 PM. ETFEdge.cnbc.com.