Gold ETF: It Always Pays to Read the Fine Print
September 16, 2019
Buying gold in an ETF means you have performance risk from multiple parties, a declining quantity of gold, and unknown, uninsured custody risk.
Some investors use Exchange-traded Funds (ETFs) to gain exposure to the price of gold. But while gold ETFs do track the price of gold they do not convey one of the main benefits of gold ownership: protection from systemic financial risk.
“Systemic risk” is when a financial institution or the financial system itself fails. History is littered with such events. In the Great Depression more than 5,000 U.S. banks closed their doors and depositors were wiped out. In the GFC banks failed across the globe.
ETFs are shares, not gold
With a gold ETF you do not own gold. You own shares. In the case of the largest gold ETF (GLD) these shares are managed by a set of systemic Wall St. financial intermediaries. These include “Sponsors”, “Marketing Agents”, “Authorized Participants”, “Custodians”, “Sub-Custodians”, and even “Sub-sub Custodians”.
The GLD ETF continually sells some of the gold to pay these middlemen, as the fine print from their prospectus lays out:
“The amount of gold held by GLD will continue to be reduced during the life of the Trust due to the sales of gold necessary to pay the Trust’s expenses”.
ETF gold is not protected by contracts, monitoring, or insurance
More concerning is that the GLD Custodian can appoint sub-custodians with no written contracts:
“These further subcustodians are not expected to have written custody agreements with the Custodian’s subcustodians that selected them.”
Is not required to monitor or to be responsible for their performance:
“The Custodian does not undertake to monitor the performance by subcustodians of their custody functions or their selection of additional subcustodians and is not responsible for the actions or inactions of subcustodians.”
Or to carry insurance:
“The Custodian and the Trustee do not require any direct or indirect sub-custodians to be insured or bonded with respect to their custodial activities”.
SendGold to the rescue
We invite our customers to read the fine print of their SendGold account here.
To summarise: With SendGold you are the individual outright owner of physical gold metal, protected under Australia’s strict property, consumer and financial laws, and insured against damage or theft by Lloyd’s of London.
Read about what J.P. Morgan and Bank of America have to say about the price of gold.
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