Wednesday , 24 July 2024

Don't Sucumb to Fear When Choosing Gold Investments

Despite its almost $50 billion in assets under management — or perhaps, because of it — the SPDR Gold Trust (GLD) ETF has caught a lot of flak from certain ardent, imaginative gold bugs who remain convinced that it is merely a cog in the greater machine of precious metals price fraud and market manipulation. Don’t trust GLD, they say, GLD is just a conspiracy between big banks to bilk you out of your hard-earned cash. It’s all a scam. Words: 689

Lorimer Wilson, editor of, provides below further reformatted and edited excerpts from Lara Crigger’s ( original article* for the sake of clarity and brevity to ensure a fast and easy read. Crigger goes on to say:

That is just not the case. While it is true that holding physical bullion instead of GLD shares can actually make more sense for buy-and-hold investors because the annual costs of custodying that gold at a place like Kitco or BullionVault can sometimes turn out to be cheaper than GLD’s 0.40 percent annual expense, what does smell fishy and draw my ire, though, is the alternative to GLD, namely, the Sprott Physical Gold Trust (PHYS).

Designed to “invest and hold substantially all its assets in physical gold bullion,” PHYS is often held up by conspiracy theorists as a safer alternative to GLD because it allows investors to take physical delivery of the underlying metal which GLD does not—and that in itself is a smoking gun of suspicious activity.

You know what? They’re right but ETFs just don’t work like that. PHYS may be a fund that trades on an exchange but it is a “closed-end mutual fund trust” not an ETF and, as such, can not issue new shares. While you can redeem PHYS shares, redemptions are only allowed once a month, with a 15-day lag, and there are stiff penalties if the redemption size isn’t large enough. As a result, like any closed-end fund, there’s nothing keeping PHYS’ share price in line with the value of its gold holdings and the data shows just that – that PHYS’ price fluctuates wildly away from its net asset value. Indeed, the PHYS fund has traded at a premium of 16% on occasion meaning that, on occasion, you have had to pay in excess of 16% above the value of the gold it holds. In spite of that fact, however, this hasn’t stopped a flood of security-obsessed gold bugs from swarming the fund. PHYS, which launched in February, already trades over 1 million shares a day, and has $441 million in assets under management.

There’s the greatest irony! Gold bugs panicking over GLD’s connection to physical gold instead have flocked to an ETF that in no way, shape or form actually tracks the price of gold. Investors in PHYS are paying serious cash to avoid a better-constructed ETF, simply out of paranoia and fear.

All things considered, GLD’s a pretty rock-solid fund. Its gold bars—all 1,200 or so tons of them—are kept in HSBC’s London vaults, and the holdings are audited multiple times every year by two different parties. Security measures for the vault resemble that for gold reserves kept by central banks. SSgA posts the full holdings of GLD up on its Web site every day, and the list of gold bars is updated every Friday. Frankly, if there were gold missing, or if GLD didn’t hold the gold it claims to, we’d know by now.

I like gold, and I think it can play an important role in your overall portfolio, but not all that glitters is worth your investment—especially if you’re buying out of fear.

* ( covers product and market developments related to index funds, exchange-traded funds (ETFs), index derivatives (futures/options/swaps), and the sophisticated investment strategies which use these financial tools.)

Editor’s Note:
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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