Is GLD Really As Good As Gold? Gold bars in Fort Knox, many chose the GLD ETF as an alternative to physical gold
Gold bars in Fort Knox, many chose the GLD ETF as an alternative to physical gold - reddogreport.com
In 2004, the launch of the SPDR Gold Trust exchange-traded fund, under ticker symbol GLD, leveled the playing field of gold investing by allowing for a less expensive option than buying the physical metal. Ever since, many have come to equate GLD with actually owning gold, but the reality is a bit more nuanced.
GLD has grown to become the second-largest exchange-traded fund by assets, valued at $72.4 billion and backed by 40.8 million ounces of physical gold. The subject of much fascination, GLD has also been targeted by skeptics who question the ETF's secretive methods and even doubt it holds all the gold in HSBC’s vault in London. Jason Toussaint, the managing director and principal executive officer of World Gold Trust Services, spoke to Forbes and sought to dispel rumors by explaining how GLD works.
Since GLD debuted on Nov. 12, 2004, it has risen more than 280% to over $170 a share. “The whole thesis [behind GLD] was creating an efficient market for gold trading,” explained Toussaint. The price discovery mechanism wasn’t working effectively: storage, insurance, and transport costs and logistics problems prevented efficient markets. "The analog [to GLD] is that to buy one share of GE I don't have to go to their sales guy, I press a button on my computer and I own it," Toussaint said.
Investors, then, are drawn to GLD because it allows them to “own” physical metal. Suzanne Hutchins, for example, Newton's investment manager for global funds and head of their real return investment team (which is part of BNY Mellon), said they like gold as an inflation hedge in the face of currency debasement. She sees GLD as one of the ways to gain exposure to the yellow metal and likes it because it is physically backed. She told Forbes her team's been to the vault and seen the actual bars.
But how does GLD work? It’s actually a lot more complicated than simply allowing investors to "own" gold. GLD is a trust, sponsored by the World Gold Council (through World Gold Trust Services), which oversees the performance of the trustee, which is Bank of New York Mellon (note Hutchins works for the trustee).
The trust seeks to reflect the price performance of gold bullion by holding gold bars and issuing shares backed by their holdings of physical metal. The gold bars are held in HSBC’s vault in London, and shares are sold in baskets of 100,000. The ETF is marketed by State Street. Where most investors are confused about GLD, though, is about redemption.