Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Facts Every Gold GLD ETF Investor Must Know

Commodities / Gold and Silver 2012 Oct 13, 2012 - 06:40 AM GMT

By: GoldSilverWorlds

Commodities

Best Financial Markets Analysis ArticleWithout any doubt, the amounts invested in the Gold ETF “GLD” are enormous. The ETF lowered the barriers for most investors to profit from gold’s long term bull market. For institutional investors, GLD became one of the easiest ways to invest in the rise of the price of gold, as they can’t easily buy physical gold. However investing in an ETF like GLD or SLV carries inherent risks, the most important one being the failure to fully back the shares with physical gold. This means that in a worst case scenario, which is not unlikely given the instability of the world economy, an investor could end up holding only paper. The primary objective of “investing in precious metals” is to benefit from safety; a paper based gold ETF is not exactly the right answer to that objective.


The article below is published by the Hard Assets Alliance. The author explains which insights he gained after researching the terms of GLD. He describes to whick kind of risks you are exposed as an investor and confirms that you mostly can’t claim physical gold in return for the shares.

It all comes down to the saying that “if you can’t touch it, you don’t own it”. Download for free the report “SmartMetals Action Kit”, which provides an in-depth look at investors’ options in buying, selling, and storing physical precious metals.

Using exchange-traded funds, like the SPDR Gold Shares (GLD), is a popular way to add gold exposure to one’s portfolio. Since GLD shares are backed by physical gold, many investors are under the impression that they can redeem them for the actual metal at any time… but is that really true?

We did some digging into GLD’s 10-K – a comprehensive summary report of a company’s performance that must be submitted annually to the SEC – and found some interesting facts that we believe every GLD investor should know.

Here’s a hint: Unless you own more than $16 million worth of GLD shares, don’t expect to be redeeming them in physical gold anytime soon.

But first, let’s go over some background information on how an ETF is structured.

Many investors prefer ETFs as a way to spread out market risk across multiple companies and indices. For example, an investor would be better off buying an ETF like SPY, which tracks the S&P 500, than buying every S&P 500 stock individually. In short, ETFs lower transaction costs by issuing shares in lots known as “baskets” for a corresponding quantity of the designated assets.

Most ETFs are organized as trusts. The company that starts the process – usually called the “sponsor” – bears all the legal and other costs of forming the trust. These include dealing with the SEC, selecting the “Trustee” and the “Custodian,” issuing the first fund shares, and depositing an initial tranche of the designated assets (in the case of GLD, physical gold) with the custodian.

GLD’s sponsor is World Gold Trust Services (WGTS), which is owned by the World Gold Council (WGC), an industry marketing organization funded by gold-mining companies. BNY Mellon Asset Servicing is GLD’s trustee, and HSBC Bank USA is the custodian. As the custodian, HSBC keeps track of and stores all of the gold that backs GLD’s shares.

Currently, HSBC’s vaults contain more than 41.3 million ounces of gold, secured safely beneath the streets of London. According to the company, gold held by the trust is not traded, leased, or loaned under any circumstances, and no additional shares can be produced by cash or derivative contracts. Each share represents about one-tenth of an ounce of bullion at current market prices. But the question most important to many gold bugs is “How can I redeem my shares in physical gold?”

For most investors using GLD, this is a difficult – and nearly impossible – process.

Fact #1: In order to qualify to redeem your GLD shares in physical gold, you need special permission from SPDR, which is typically reserved for brokers and market-makers like Goldman Sachs and JPMorgan Chase.

Fact #2: Shares can only be redeemed in batches of 100,000, which is equivalent to 10,000 gold ounces (a little over $16 million at today’s market price).

Fact #3: To add insult to injury, deep inside GLD’s 10-K we found that the fund retains the option to redeem gold requests in cash rather than the physical metal. Translation: Even with $16 million in GLD, you still might not be able to receive your physical gold upon request. And there’s more: since GLD is structured as a grantor trust, investors don’t pay taxes similar to regular ETFs.

Fact #4: As a GLD investor, you pay taxes on the underlying asset – in this case, gold. Gold, however, is taxed as a long-term holding at a rate of 28% instead of the 15% capital gains tax you would pay on other equities. That can certainly eat into your returns.

At least, according to GLD spokesman George Milling-Stanley of World Gold Trust Services, the fund is truthful about its gold holdings. Many wonder how GLD is able to procure so much gold in the first place. But, Millings-Stanley states, the process is easier than you would think: nearly all the gold comes from another part of the HSBC vault.

HSBC’s vault – which he claims is “about the size of a football field” – holds both the gold of many of HSBC’s clients and GLD:

“HSBC stores both allocated and unallocated gold. When the trust (GLD) issues new shares, the metal to back them comes from clients of HSBC, who have unallocated pool gold stored with the bank and are willing to sell at the price offered. Once the authorized participant completes the transaction, the gold is moved from the unallocated section of the vault to the area assigned specifically to us (GLD). Occasionally, gold will have to come from outside of HSBC, but there’s always been sufficient bullion available from other London vaults. So transport isn’t a problem, and the market maintains a very careful chain of custody.”

For those skeptical that GLD actually has the gold it claims to have in its vaults, he says to check the serial numbers, refiner name, fineness, and weight of every bar, which is updated and posted every Friday on the company’s website. He also points to independent audits conducted by Deloitte & Touche, but confesses that the firm does not count each individual bar. Rather, they certify the “adequacy of accounting procedures.”

For those of us who enjoy the safety and protection offered by physical gold, GLD can have its gold holdings audited until the cows come home. It still doesn’t change the fact that only a select few of GLD’s institutional investors can redeem their shares in physical gold when the time comes. If you are simply looking to ride the price of gold, go ahead and use GLD as a proxy – just don’t confuse ownership of shares with ownership of metal.

Remember that physical gold is the only real weapon against governments devaluing their currencies and the runaway inflation that comes with it. Gold has been used as money for thousands of years and has historically always maintained its purchasing power, even in times of hyperinflation when paper currencies became worthless. Case in point: In the 1930s, when gold was trading at $35 per ounce, you could have bought a good-quality suit for a one-ounce coin. Today, at a price of around $1,600/oz, you can still get a good-quality suit for one ounce of gold. Try to do the same with 35 of your 1930s paper dollars.

Fortunately, those looking for more than what GLD has to offer – namely, protection from inflation and real exposure to gold – have a few options. A new company, the Hard Assets Alliance, offers an easy way to buy and sell physical gold – and store it at a very reasonable rate in any one of five secure vaults in the US and abroad. Investors can take delivery of their gold anywhere in the world. To learn more, click here to download the SmartMetals Action Kit, a free report from the Hard Assets Alliance.

Source - http://goldsilverworlds.com/gold-silver-insights/4-facts-every-gld-investor-must-know/

© 2012 Copyright goldsilverworlds - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in