Gold ETF Mechanics
By GCRU Gold News on Thursday, December 1 2016, 04:36 - Permalink
Exchange traded investment vehicles backed by physical gold refer to a group of trusts, funds, or other legal entities which hold gold bars with a custodian in a vault and which issue securities, units or other fractional ownership claims against that gold. These securities are pitched and marketed as an alternative to direct ownership of gold bullion and these products have seen significant expansion and evolution over the last 10-12 years.
There are a number of such products including Exchange Traded Funds (ETFs) and Exchange Traded Certificates (ETCs). These product classes now represent a relatively large footprint within the gold investing space. In addition to the very large and well-known SPDR Gold Trust (GLD) and iShares Gold Trust (IAU), there are several other similar products from providers such as ETF Securities, Source ETFs, and Xetra-Gold. At the time of writing, GLD held nearly 900 tonnes of gold, ETF Securities products held over 300 tonnes, iShares gold ETFs held approximately 275 tonnes of gold, and Xetra-Gold held 110 tonnes. Therefore, their combined gold holdings are now larger than all but the world’s largest central bank gold reserve holdings.
As popular as these securities are, it’s important to look at what exactly these products provide, and what they don’t provide when compared to ownership of segregated physical gold bars or gold coins.