Tuesday, December 13th, 2011
The GLD – Golden Shell Game
The whole idea behind the GLD ETF was to create an efficient way to trade the physical metal. It was a less expensive option than buying the physical metal and then wondering where to store it. Investors flocked to it in 2004 when it first opened, and now it is the second-largest ETF by total assets claiming it holds 40.8 million ounces of physical gold in HSBC’s vault in London.
GLD is sponsored by the World Gold Council, who oversees the Trustee – Bank of Mellon New York. Investors in the GLD may believe they “own” gold, but can’t go visit the vault in London and pick it up. Only “authorized participants” can create or redeem shares. These participants are broker-dealers and other securities market participants who have an agreement with the Trustee and sponsor. These participants include names like Citi, Goldman Sachs, Morgan Stanley, JPMorgan Chase and Merrill Lynch – Bank of America. These people can go and either deposit shares and take gold or deposit gold and take shares. Which of these – actual gold bars or pieces of paper – would you rather have in your possession?Continue reading »