Thursday, May 16, 2024

Are Gold Etfs Backed By Physical Gold

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Why Would I Consider Gold

Gold ETF vs Physical Gold

In brief, the answer to that question is something known as correlation. Put simply, it means that various asset classes either move in very similar patterns or very different patterns . As it happens, gold has a very low correlation to several other asset classes you likely hold in your portfolio, so it can help smooth out the ride of your investment returns, so to speak.

It has been said, A picture is worth a thousand words. So, here are 4 pictures, and just a few words.

First, from a paper entitled The Golden Dilemma, by Claude B. Erb and Campbell R. Harvey.

: Erb & Harvey – The Golden Dilemma

Over the period from 1975-2012, quadrant 3 represents the percentage of the time in which both the S& P 500 and gold fell at the same time. As can be seen, that represents 17% of all observations. The flip side is that, in 83% of the covered periods, gold served a valuable function as a hedge.

Next, from a recent case study from State Street Global Advisors .

: State Street Global Advisors Case Study

In Figure 1, they display the results when one starts with an already-diversified portfolio, and then introduce an allocation to gold of 2%, 5%, and 10%, subtracting small percentages from the other components to do so. They propose that the investment returns remain quite similar, but with less volatility. As an aside, Figure 2 provides a more granular breakdown of Figure 1.

Next, the results.

With that brief background, its time to look at our 6 ETFs!

Spdr Gold Minishares Trust

Total assets: US$4,255.68 million

The SPDR Gold MiniShares Trust offers investors one of the lowest available expense ratios for a US-listed ETF backed by physical gold. This ETF represents fractional, undivided beneficial ownership interests in the trust, which holds only physical gold bullion and, from time to time, cash.

How To Redeem For Physical Bullion

Sprott Physical Bullion Trust unitholders have the right to redeem for physical metals on a monthly basis, subject to meeting the minimum redemption amount. To submit a request for physical redemption, a unitholder must complete the required redemption form for the specific Trust from which they wish to redeem units.

Enter a specific number of Trust Units to estimate how much physical bullion they represent.

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Sprott Physical Gold And Silver Trust Etf

Ticker: CEFDividend Yield : N/AAssets Under Management: $4.34 billionConvertible to Physical Gold: Yes

The closing Fund is, again, different from others. For one, it has the actual metal backing it up, and not gold equities, and two, it holds gold and silver, and three, its a trust, not exactly an ETF, but it can be traded just like one, and it’s very similar in nature to the Royal Mint ETR.

It holds 1.4 million ounces of gold and 60.3 million ounces of silver. The metals and held and protected by the Royal Canadian Mint. This dependency on both gold and silver, where distributes the risk on two metals instead of one, also adds silver’s volatility to the trust. One of the reasons to consider this Fund is its tax advantages.

Like most other gold ETFs, it doesn’t pay any dividends. As for capital growth, its progress is a bit different from gold-only ETFs. Its five years returns are about 88%. The trust was created by Sprott, a global asset management company based in Toronto.

What Is A Premium/discount

This New Gold ETF Will Reportedly Cut Fees by 37%

The amount the Trust’s closing price is trading above or below the reported NAV , expressed as a percentage of the NAV. When the Trust’s closing price is greater than the Trust’s NAV, it is trading at a premium and the percentage is expressed as a positive number. When the Trust’s closing price is less than the Trust’s NAV, it is trading at a discount and the percentage is expressed as a negative number.

Data updated as of Jan 7, 2022

The above table and line chart present information about the differences between the daily market price of a Trust unit and the Trusts reported net asset value. The charts horizontal axis shows the premium or discount expressed in basis points. The market price is determined by the midpoint between the highest bid and the lowest offer on the Trusts listing exchange, as of the time that the Trusts NAV is calculated .

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Gold Trading Volumes And Futures Demand Fall

Gold trading volumes saw a sizeable drop in April, with daily trading averaging US$120bn a day compared to US$167bn a day in March. Declines in trading volumes in exchange-traded products futures and ETFs were the biggest contributors, with OTC volumes seeing a relatively smaller m-o-m decline. Net long positioning, via the recent Commitment of Traders report for COMEX gold futures, fell towards the end of the month, to 735t after having maintained a tight 820-890t range throughout most of April.4

Horizons Gold Yield Etf

Ticker: HGYDividend Yield : 4.26 %Assets Under Management: $53.6 millionConvertible to Physical Gold: No

Another stock from Horizon and the reason is its dividends and a decent yield. The stock doesnt have a very consistent growth history. Though, if we consider its growth from 2019, the rate is decent enough. The stock raised its market value by about 29% since Jan 2019. It’s an actively managed ETF, hence the relatively high fee and even higher MER of 1.09%.

Unlike the previous ETF, this one isnt made up of individual gold stocks. The bulk of the ETF comprises Graniteshares Gold Trust , an ETF that tracks the price of gold. Another significant portion is occupied by SPDR Gold Shares , which is the largest gold-backed ETF in the world. The rest is cash.

It also distributes dividends monthly, and the progression is a bit more linear compared to the previous ETF, at least for this year. In 2020, the smallest distribution was in January , and the most significant one was recently in September . The estimated annualized yield is 7.27%, and it might overshoot its prediction if the stock market drops again.

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Etfs Valued Using Lbma Gold Price

ETFs and similar investment vehicles are usually valued based on their Net Asset Value . The NAV is the value of assets, less the value of liabilities, divided by the number of shares outstanding. ETFs usually trade at prices in and around the NAV but they can trade at either a discount or a premium to the NAV.

In the case of the large gold-backed ETFs, the NAV is calculated based on the LBMA Gold Price benchmark which is a price derived from a daily auction of unallocated gold in London where the only direct participants are a small group of LBMA bullion banks. In fact, the rules of access to the auction prevent any entity except LBMA bullion bank members from being direct participants in this auction.

Since March 2015, this auction is the successor to the scandal ridden London Gold Fix auction, and is essentially the same process, run by some of the same banks. The new LBMA auction will not even reveal who the auction chairman is, so the entire process is still not transparent. As such, the NAVs of these ETFs are formed by a gold price which is central to the London Gold Markets system of unallocated gold transfers, where there is zero trade reporting, zero position reporting, an opaque system of clearing and vaulting, and where vastly more gold is traded than there is physical gold backing.

Factbox: Gold Bars Held By The Top 10 Gold Etfs

Gold ETFS vs Physical gold

Newly casted ingots of 99.99 percent pure gold are stored after weighing at the Krastsvetmet non-ferrous metals plant, one of the world’s largest producers in the precious metals industry, in the Siberian city of Krasnoyarsk, Russia November 22, 2018. REUTERS/Ilya Naymushin

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LONDON, March 31 – Exchange-traded funds are one of the most popular ways to invest in gold. Shares represent gold bars held in vaults and are easy to buy and sell, freeing investors from the hassle of buying and storing bullion themselves.

ETFs and similar products together held 3,570 tonnes of gold worth $210 billion at the end of 2021, according to the World Gold Council, which tracks the sector.

As part of a report on ethical gold investments, Reuters asked the ten largest ETF operators – all based in Europe or North America – what gold they own. read more

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All the funds only hold gold bars made by refiners accredited by the London Bullion Market Association , a standard-setting industry body.

Six, with 955 tonnes of gold between them, said they prioritised bars made since 2012, when the LBMA introduced rules aimed at stopping the use of gold linked to crime or violence.

Before that date, LBMA rules focused only on the purity, weight and size of gold bars.

Following are data and comment from the funds.


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Vaneck Vectors Junior Gold Miners Etf

The VanEck Vectors Junior Gold Miners ETF offers the most upside potential. That’s because it focuses on smaller mining companies, known as junior gold miners, some of which are still exploration-stage companies. These smaller miners could expand their production faster and deliver higher returns than their larger rivals. However, with that higher reward potential comes more risk. That’s because they lack the scale of their larger rivals, so making a misstep such as cost overruns on a mine development could be costlier to investors.

The VanEck Vectors Junior Gold Miners ETF is reasonably large and has a relatively low expense ratio. This gold ETF has nearly 100 holdings. Its five largest are:

  • Pan American Silver
  • Endeavour Mining
  • First Majestic Silver

These mining companies are much smaller than most held by the VanEck Vectors Gold Miners ETF. The largest holding on this list has a market cap of $6.2 billion. Further, the five largest holdings of this ETF make up less than 25% of its assets. Because of that, investors have broad exposure to several up-and-coming gold and silver mining stocks.

Harvest Global Gold Giants Index Etf

Ticker: HGGGDividend Yield : N/AAssets Under Management: $6.9 millionConvertible to Physical Gold: No

This is both the youngest and the smallest ETF on this list. It was created in 2019 and has performed brilliantly since. It doesn’t pay any dividends, and the distributions , are reinvested. Since Jan 2019, the Fund has returned almost 94% to its investors. It means that it has the potential of doubling up your investment if it continues to grow at this pace.

It follows the Solactive Gold Giants Index, aimed at tracking 20 of the largest gold companies in the world. Its equally weighted, passively managed , and has a High risk rating.

The three largest equities on the Fund are Fresnillo PLC , Kirkland Lake Gold , and Alamos Gold . The geographical distribution is also a bit different: Canada , Australia , UK , and US .

Its a relatively lightweight fund, with a low fee, and it tracks a strong index. But since it’s so young, it’s yet to be seen how it will hold up against other gold ETFs that have been trading for years on TSX.

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Risk #: Relying On Banks

HSBC is Britains biggest bank. It is also the custodian for GLD, which means it buys and stores gold for the fund.

Unbeknownst to many GLD investors, HSBC has a history rife with scandals that include predatory lending, tax evasion, and even accusations that their lack of controls helped terrorist groups and drug traffickers. Their rap sheet is pretty long

Does this sound like a bank you want to be the custodian of your gold ETF?

The answer is an obvious and resounding NO. And yet HSBC continues to be the cornerstone agency responsible for storing and supplying bullion for the GLD fund.

The thing is, most bullion ETFs also store their gold at a bank. And that is the bigger problem for investors:

  • One reason we hold gold is to protect against the banking system and most ETFs are part of that very system!

This link between bullion ETFs and the banking system puts your investment at risk during an economic or monetary crisis. Bullion ETFs are vulnerable to all kinds of restrictions, emergency regulations, and even bank closures.

Perth Mint Gold Token

Gold ETFs Or Physical Gold? Hidden Dangers In GLD

The Perth Mint Gold token is a tokenized version of the GoldPass certificate at a ratio of 1:1, which is backed by physical gold at a ratio of 1:1. Each of the certificates can be traded for tokens, as can the tokens for the certificates and fiat on digital asset exchanges.

According to the token issuer website, the physical gold is stored in Perth Mints central bank. The held gold is guaranteed by the Government of Western Australia.

The token, like other cryptos, is easily transferable and divisible. It can be redeemed back to gold or other fiat equivalents at any time. The fiat connection unlocks liquidity even for the largest trades.

Besides, the crypto does not have any transaction, storage, or management fees. This makes it one of the most effective and affordable gold-backed tokens or gold-backed cryptocurrencies around the world.


  • The token can be redeemed in different Perth Mints products from small 1 oz cast bars to 400 oz LBMA-accredited London Good Delivery bars.
  • The Perth Mint publishes all balances of the Trovios GoldPass accounts hence anyone can publicly verify the backing of the token with gold.
  • 1 PMGT = 1 oz GoldPass certificate = 1 oz pure physical gold. Exchange can be done through Trovio.
  • You can trade the tokens on the Over-the-Counter or OTC gold market XAU.

Minimum purchase: Not available.

Website: Perth Mint Gold Token

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The #1 Reason To Hold Physical Gold

As an investor, you dont want to experience delays selling your bullion ETF or in getting proceeds paid out or to find out the fund doesnt have the gold it thought it had or to watch your fund fall while the gold price rises.

All these and more can impact the #1 reason you want to have physical gold:

  • In a crisis, its important to be liquid.

In a crisis situation, you could be subject to restrictions ranging from inconvenient to disastrous:

  • Temporary bank closures and/or limited access to physical cash
  • An interruption in the electrical grid, no internet connection, or a security breach.
  • A bank bail-in, where depositor money is frozen and used to keep the bank afloat .

If any of these or other actions take place, physical gold will give you a ready form of money to meet any financial need or emergency. You cant do these things with a gold ETF, because most dont permit delivery of bullion to retail investors . You will also have to wait on settlement, and then for a check to be mailed or funds to be wired, and that assumes the system is still functioning smoothly and can process your request exactly when you need it. And those funds will end up in the banking system anyway, which could pose another barrier to access. And all along you were merely renting a paper product that gave you little to no ability to get real gold delivered to you.

Etf Risk #: You Still Don’t Own Any Physical Gold

Buy a gold-backed ETF and you gain exposure to the price of gold, not actual, physical gold. Owning shares in a gold ETF is not the same thing as owning physical gold, and ETFs can’t replicate the safety and security offered by physical gold.

In theory you can take delivery of gold from your ETF shares, but it isnt as straightforward as buying physical gold outright. Heres an example. As Business Insider and note, GLD shareholders have to have a minimum of 100,000 shares in order to request an exchange, which is almost $12 million worth of shares as of August 8, 2017not a position the average person is likely to have. Gold is then delivered in 400 to 430 oz. gold bars and cannot be broken into smaller pieces. Even after your request, the fund can send you a check instead of bullion for any reason they deem necessary.

In the words of GLD’s founder, George Milling-Stanley, When you buy GLD shares, you’re buying an ownership in a trustThe individual does not own gold that backs the trust, any more than an investor in GM owns a car or an investor in Apple owns an iPhone. GLD shares represent a paper claim on gold, not gold itself.

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How To Obtain Physical Certificates

In the United States, shareholders can contact the Computershare call center at or go to and access a transfer form by creating an account.

In Canada, shareholders can direct their broker to withdraw units from CDS Clearing and Depository Services Inc. When the broker puts in the withdrawal, the transfer agent in Canada, TSX Trust Company, will issue physical certificates to the broker.

What You Need To Know About Gold Exchange Traded Funds

The Best Way To Own Gold: Physical Delivery or ETFs? (w/ Raoul Pal & Dan Tapiero)

Amidst the pandemic, a certain yellow-coloured precious metal has received global recognition as a safe haven from volatile markets. While often associated with its physical form i.e. jewellery, coins, or gold bars, gold can be traded in paper form as well â one of which is Gold Exchange Traded Funds .

Popular in its own right for being cost-efficient, transparent, and liquid, you can invest with a smaller commitment of capital, and without the hassles of safe storage or insurance concerns. But you might be wondering, what are Gold ETFs?

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