Gold Exchange Traded Funds May Have a Hidden Risk

Gold Exchange Traded Funds ( ETFs) are among the American Public’s most popular methods to hold, trade or speculate in gold. They were first offered in the 1990’s. The largest, SPDR Gold Shares, began in 2004. The early ETFs encountered significant resistance because gold believers demanded physical possession of their gold. In this fashion they avoided worrying about the entity holding their gold assets. They were sufficiently concerned with the viability of the dollar or the advent of a financial crisis, without adding another layer of fear that they couldn’t get their gold if they wanted it. However, as time passed, and more unsophisticated Americans realized they needed the protection of gold, the early reticence to the gold ETFs was overcome.
Today, the public has embraced the gold ETFs. Anyone with a stock account can purchase or sell virtually any amount of the yellow metal in a matter of minutes. Commissions are low. Storage concerns and finding a coin or bullion dealer from which to buy or sell their gold, are things of the past.
SPDR Gold Shares alone holds over 27 million ounces of gold worth $35 billion. Their fees appear low at a 0.4% daily compounded rate, and their gold is held in trust in London by the venerable HSBC Bank Plc. The Bank of New York Mellon Asset Servicing, a division of the trusted Bank of New York Mellon, is the trustee. While they don’t claim to have insurance for the gold they hold in trust, this troubles me less than another potential far greater concern.
On April 5, 1933, President Franklin D Roosevelt issued Executive Order 6102 which prohibited gold ownership, and forced Americans to surrender their gold. That was during the depths of the Great Depression. The prior few years witnessed countless U. S. bank runs with numerous banks going bankrupt. People lined up before their banks in an effort to get the money they had deposited. Many were unsuccessful.

This post was published at GoldSeek on 20 May 2016.