“Most interesting post today from Izabella Kaminska at the Financial Times’s Alphaville, who follows up on the FT’s Friday report on John Paulson’s Paulson & Co. investment in shares of gold exchange-traded fund SPDR Gold Trust (NYSE:GLD), which at $3.4 billion, is Paulson’s largest stake. Kaminska notes that Paulson’s preference for an ETF over holding the physical commodity itself is part of the increasing trend to profit by effectively warehousing gold: that’s because the ETF is backed up by reserves which must held, not lent out as in past,” Tiernan Ray Reports From Barrons.
Ray goes on to write, “Gold supplies, which previously, we might add, would have been put to work by central banks and bullion banks that owned them. Now — however — that gold is sitting on deposit, and doing so very much idly. And given that the (NYSE:GLD), the largest of the gold funds, was registered as owning a record 1,320.436 tonnes of gold on June 29, that’s a lot of gold just doing nothing.”
“Kaminska notes that holders of the (NYSE:GLD) can hedge that holding by selling “front month gold futures” and then collect a “contango premium.” But Kaminska’s real question is what happens with all this gold sitting on deposit. What happens if (NYSE:GLD), which is going up and up and up in price — it is up 10% this year versus the 3% dip in the S&P 500 — falls? Would it create a “very real liquidation risk for the commodity?” as Kaminska asserts?” Ray Reports.
Here is a snippet from FT Alphaville:
“The convergence makes sense, because the more shares that are issued the more gold bars are locked up idly in the fund. So even though the assets are going up, and gold is theoretically being bid, the fact that that gold is being locked away for the purposes of the contango trade is the potential equivalent to a mass pool of oversupply in the market – just like in oil. Furthermore, if (NYSE:GLD) suddenly becomes less sought after than gold itself — because the contango trade can’t be financed easily anymore– that creates a very real liquidation risk for the commodity,” Izabella Kaminska Reports From FT Alphaville.
Kaminska goes on to say, “Which means the BIS initiating a gold swap, could be seen almost the equivalent of OPEC coming in and trying to cut supply from the oil market. As the ultimate cartel for money supply, the BIS, along with its member central banks, is in the business of ensuring the balance of money supply and demand. Hence, just as Opec takes out oil from the market to bolster the purchasing power of the dollar (and thus its own interests), the BIS could be intervening in the gold market the same way?”
SPDR Gold Shares ETF (NYSE:GLD)
SPDR Gold Shares offer investors an innovative, relatively cost efficient and secure way to access the gold market. SPDR Gold Shares are intended to offer investors a means of participating in the gold bullion market without the necessity of taking physical delivery of gold, and to buy and sell that interest through the trading of a security on a regulated stock exchange. The introduction of SPDR Gold Shares was intended to lower many of the barriers, such as access, custody, and transaction costs, that have prevented some investors from investing in gold.
SPDR Gold Shares represent fractional, undivided beneficial ownership interests in the Trust, the sole assets of which are gold bullion, and, from time to time, cash. SPDR Gold Shares are intended to lower a large number of the barriers preventing investors from using gold as an asset allocation and trading tool. These barriers have included the logistics of buying, storing and insuring gold. In addition, certain pension funds and mutual funds do not or cannot hold physical commodities, such as gold, or the derivatives.
|Name||SPDR Gold Trust|
|Objective||Designed to track the price of gold (net of Trust expenses)|
|Exchange||New York Stock Exchange Arca|
|Initial Pricing||Based on the price of 1/10th of an ounce of gold|
|Minimum Order Size||1 share|
|Sponsor||World Gold Trust Services LLC|
|Trustee||BNY Mellon Asset Servicing|
|Custodian||HSBC Bank (USA)|
|Marketing Agent||State Street Global Markets, LLC, an affiliate of State Street Global Advisors|
|Short Sale Eligible||Yes|
|Structure||Continuously offered, open-ended investment trust|
* The Sponsor and the Marketing Agent have agreed to reduce the fees payable to them from the assets of the Trust to the extent required so that the estimated ordinary expenses of the trust do not exceed an amount equal to 0.40% per annum of the daily net asset value during the period ending seven years from the date of the Trust Indenture or upon the earlier termination of the Marketing Agent Agreement. Investors should be aware that if the value of the Trust assets is less than approximately $388 million, the ordinary expenses of the Trust will be accrued at a rate greater than 0.40% per year of the daily ANAV of the Trust even after the Sponsor and the marketing Agent have completely reduced their combined fees of 0.30% per year of the daily ANAV of the Trust. This amount is based on the estimated ordinary expenses of the Trust.
SPDR Gold Trust Advantages
|Easily Accessible||Listed on the NYSE Arca.|
|Secure||The Gold Shares represent fractional, undivided interests in the Trust, the sole assets of which are physical gold bullion and, from time to time, cash.|
|Relatively Cost Effective||For many investors, transaction costs related to the Gold Shares are expected to be lower than the costs associated with the purchase, storage, and insurance of gold bullion in a traditional gold bullion account.|
|Liquid||Structure allows for baskets to be created and redeemed according to market demand, creating liquidity.|
|Transparent||There exists a 24-hour global over-the counter market for gold bullion, which provides readily available market data. The price, holdings, and net asset value of Gold Shares, as well as market data for the overall gold bullion market, can be tracked daily at spdrgoldshares.com.|
|Flexible||Gold Shares (NYSE Arca: GLD) are listed on the New York Stock Exchange Arca and trade the same way ordinary stocks do. It is possible to buy or sell Gold Shares continuously throughout the trading day on the exchange at prices established by the market. Additionally, it is possible to place market, limit and stop-loss orders of Gold Shares.|
Investors have turned to gold ETFs as a safe haven during the recent stock market turmoil. They offer a great way to protect you against risk in your portfolio during uncertain times. We have put together some other ETF gold options for your viewing below:
The investment SPDR Gold ETF (NYSE:GLD) seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation.
The investment ETF (NYSE:GDX) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the AMEX Gold Miners index. The fund generally normally invests at least 80% of its total assets in common stocks and American depositary receipts (ADRs) of companies involved in the gold mining industry. The fund is nondiversified.
The Funds ETF (NYSE:GDXJ) investment objective is to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors Junior Gold Miners Index (the “Junior Gold Miners Index”). For a further description of the Junior Gold Miners Index, see “Junior Gold Miners Index.”
The objective of ETF (NYSE:SGOL) the newly listed shares is to reflect the performance of the price of Gold bullion, less the Trust’s operating expenses. The Trust is open ended and is designed for investors who want a cost-effective(1) and convenient(2) way to invest in Gold as well as diversify their Gold holdings.
The investment ETF (NYSE:UGL) will seek to replicate, net of expenses, twice the performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The fund normally invests assets in financial instruments with economic characteristics twice the return of the index. It may employ leveraged investment techniques in seeking its investment objective.
The investment ETF (NYSE:DGL) seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Liquid Commodity Index – Optimum Yield Gold Excess Return. The index is a rules-based index composed of futures contracts on gold and is intended to reflect the performance of gold.
The investment ETF (NYSE:DGP) seeks to replicate, net of expenses, twice the daily performance of the Deutsche Bank Liquid Commodity index – Optimum Yield Gold Excess Return. The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.
The objective ETF (NYSE:IAU) of the trust is for the value of its shares to reflect, at any given time, the price of gold owned by the trust at that time, less the trust’s expenses and liabilities. The trust is not actively managed. It receives gold deposited with it in exchange for the creation of baskets of iShares, sells gold as necessary to cover the trust’s liabilities, and delivers gold in exchange for baskets of iShares surrendered to it for redemption. The trust is not an investment company registered under the Investment Company Act of 1940 or a commodity pool for purposes of the Commodity Exchange Act.
The investment ETF (NYSE: DZZ) seeks to replicate, net of expenses, twice the inverse of the daily performance of the Deutsche Bank Liquid Commodity index – Optimum Yield Gold Excess Return. The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.
The investment ETF (NYSE: GLL) will seek to replicate, net of expenses, twice the inverse daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The fund normally invests assets in financial instruments with economic characteristics inverse to the index. It may employ leveraged investment techniques in seeking its investment objective.