Nice post over on Voy. I get questions from time to time inquiring about whether GLD is... "gold."
This is what it is. Very well written, too.
Smythe - GLD
, 14:02:07 09/19/07 Wed
Think of the Ishares (GLD) as a closed fund trading on the market. For those shares in that closed fund, bullion has been deposited with the custodian or subcustodian. Those shares can turn over many times.. and will do so in the separate market for the Ishares alone. The GLD shares only represent the opportunity to participate in the PRICE MOVEMENT of gold. They are merely pieces of paper... a bet.
So long as those shares are are not accumulated and redeemed by an "Authorized Participant" which an ordinary GLD shareholder specifically is not, the claimed bullion will remain with the TRUST for such shares.
The individual shareholder of the ishare (GLD)who purchases in the share market, however, is given NO right by the Trust to redeem that GLD share for the bullion that was initially deposited. That the public thinks they have such right is incorrect. It is a "myth" on the Street.
[The Gold ETF in Australia, in contrast, may allow redemption by the individual shareholder].
So, regardless of how much gold is deposited with the TRUST, there is supposed to be gold in a vault for the GLD shares in Retail Trade. And as a consequence, regardless of the volume of GLD sales on any given day, no additional gold need necessarily be deposited.
But bullion separately may be deposited and redeemed by "Authorized Participants" for Ishares that never even reached the Retail Market. There is no trust requirement for an Authorized Participant (read specified Bullion Banks and most likely friends) to even sell the ishares (GLD) (received on deposit) into the Ishare market. The Prospectus specifically states that.
Significantly, the depositors ("Authorized Participants") have the alternative of using the Ishares (GLD) as collateral for setting up a spread at the COMEX, by selling Gold futures short against the Ishares they hold.
Such gives the bullion depositor ("Authorized Participant") the ability to make profit at a "Commodity" taxable rate rather than a higher "collectible" tax rate, which was adjudged to be applicable to GLD. The Prospectus specifically acknowledges that the Authorized Participants may be engaged in bullion trade and have trading desks.
As to the the question whether the gold will be there, the lingering doubt of the potential for "double counting" may exist.