Some Concerns Underlying Gold-Backed ETFs

by Ronan Manley

Gold-backed ETFs are a product class that has grown strongly in scale and popularity over the last decade. As popular as these products are, it’s important to understand the mechanics of these ETF investment vehicles, and to appreciate what they can and can’t provide to gold investors.

Some Concerns Underlying Gold-Backed ETFsHolding a gold-backed ETF provides exposure to the gold price, not to gold. In the ETFs structured as trusts, such as GLD and IAU, the unit holder is a shareholder, not a gold holder.

ETFs that store and trade their gold in London also support and perpetuate the opaque and secretive London Gold Market and the unallocated gold pooling bullion banking system.

Gold-backed ETFs and similar investment vehicles own or control the physical gold holdings they claim to hold or control. This is not in dispute. It’s the structures of these products that gives pause for concern, and investors in these products need to be aware of what exactly they own, what they don’t own, and be aware of the multiple layers and participants which exist between the ETF holder and the underlying gold.

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