How are gold ETFs trading with normal spreads?

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Libertarian666
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How are gold ETFs trading with normal spreads?

Post by Libertarian666 » Thu Apr 02, 2020 8:09 am

Since it doesn't appear that there is any gold available, even in 400 oz. good delivery bars, at less than about a 6% spread, how can IAU (as an example) trade at a normal spread of a few cents per share? Does that mean that they don't actually buy and sell gold when people buy and sell shares?
mdwilson1991
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Re: How are gold ETFs trading with normal spreads?

Post by mdwilson1991 » Thu Apr 02, 2020 1:45 pm

Libertarian666 wrote:
Thu Apr 02, 2020 8:09 am
Since it doesn't appear that there is any gold available, even in 400 oz. good delivery bars, at less than about a 6% spread, how can IAU (as an example) trade at a normal spread of a few cents per share? Does that mean that they don't actually buy and sell gold when people buy and sell shares?
Maybe this answers your question, from the IAU prospectus:

The Trust issues and redeems Shares on a continuous basis but only in Baskets of 50,000 Shares. Only Authorized
Participants, which are registered broker-dealers who have entered into written agreements with the Sponsor and the
Trustee, can deposit gold and receive Baskets in exchange. Upon the deposit of the corresponding amount of gold with
the Custodian, and the payment of the Trustee’s applicable fee and of any expenses, taxes or charges (such as stamp
taxes or stock transfer taxes or fees), the Trustee will deliver the appropriate number of Baskets to the DTC account of
the depositing Authorized Participant. As of the date of this prospectus, ABN AMRO Clearing Chicago LLC, Barclays
Capital Inc., Citigroup Global Markets, Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc.,
Goldman Sachs & Co., HSBC Securities (USA) Inc., JP Morgan Securities, Inc., Merrill Lynch Professional Clearing
Corp., Morgan Stanley & Co. LLC, Scotia Capital (USA) Inc., UBS Securities LLC, and Virtu Financial BD LLC are the
only Authorized Participants. The Sponsor and the Trustee maintain a current list of Authorized Participants. Gold
deposited with the Custodian must meet the specifications for weight, dimensions, fineness (or purity), identifying marks
and appearance of gold bars and as of January 1, 2020, must be produced by refiners that meet certain throughput and
tangible net worth requirements as set forth in “Good Delivery List Rules - Conditions for Listing for Good Delivery
Refiners” published by the LBMA.

So it sounds like,a bank deposits some gold, gets shares created, and then these are traded.
Libertarian666
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Re: How are gold ETFs trading with normal spreads?

Post by Libertarian666 » Thu Apr 02, 2020 1:56 pm

mdwilson1991 wrote:
Thu Apr 02, 2020 1:45 pm
Libertarian666 wrote:
Thu Apr 02, 2020 8:09 am
Since it doesn't appear that there is any gold available, even in 400 oz. good delivery bars, at less than about a 6% spread, how can IAU (as an example) trade at a normal spread of a few cents per share? Does that mean that they don't actually buy and sell gold when people buy and sell shares?
Maybe this answers your question, from the IAU prospectus:

The Trust issues and redeems Shares on a continuous basis but only in Baskets of 50,000 Shares. Only Authorized
Participants, which are registered broker-dealers who have entered into written agreements with the Sponsor and the
Trustee, can deposit gold and receive Baskets in exchange. Upon the deposit of the corresponding amount of gold with
the Custodian, and the payment of the Trustee’s applicable fee and of any expenses, taxes or charges (such as stamp
taxes or stock transfer taxes or fees), the Trustee will deliver the appropriate number of Baskets to the DTC account of
the depositing Authorized Participant. As of the date of this prospectus, ABN AMRO Clearing Chicago LLC, Barclays
Capital Inc., Citigroup Global Markets, Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc.,
Goldman Sachs & Co., HSBC Securities (USA) Inc., JP Morgan Securities, Inc., Merrill Lynch Professional Clearing
Corp., Morgan Stanley & Co. LLC, Scotia Capital (USA) Inc., UBS Securities LLC, and Virtu Financial BD LLC are the
only Authorized Participants. The Sponsor and the Trustee maintain a current list of Authorized Participants. Gold
deposited with the Custodian must meet the specifications for weight, dimensions, fineness (or purity), identifying marks
and appearance of gold bars and as of January 1, 2020, must be produced by refiners that meet certain throughput and
tangible net worth requirements as set forth in “Good Delivery List Rules - Conditions for Listing for Good Delivery
Refiners” published by the LBMA.

So it sounds like,a bank deposits some gold, gets shares created, and then these are traded.
So as long as they don't need any more shares (= more gold), the spread can be pretty small.
Thanks!
pmward
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Re: How are gold ETFs trading with normal spreads?

Post by pmward » Thu Apr 02, 2020 2:27 pm

Libertarian666 wrote:
Thu Apr 02, 2020 1:56 pm
mdwilson1991 wrote:
Thu Apr 02, 2020 1:45 pm
Libertarian666 wrote:
Thu Apr 02, 2020 8:09 am
Since it doesn't appear that there is any gold available, even in 400 oz. good delivery bars, at less than about a 6% spread, how can IAU (as an example) trade at a normal spread of a few cents per share? Does that mean that they don't actually buy and sell gold when people buy and sell shares?
Maybe this answers your question, from the IAU prospectus:

The Trust issues and redeems Shares on a continuous basis but only in Baskets of 50,000 Shares. Only Authorized
Participants, which are registered broker-dealers who have entered into written agreements with the Sponsor and the
Trustee, can deposit gold and receive Baskets in exchange. Upon the deposit of the corresponding amount of gold with
the Custodian, and the payment of the Trustee’s applicable fee and of any expenses, taxes or charges (such as stamp
taxes or stock transfer taxes or fees), the Trustee will deliver the appropriate number of Baskets to the DTC account of
the depositing Authorized Participant. As of the date of this prospectus, ABN AMRO Clearing Chicago LLC, Barclays
Capital Inc., Citigroup Global Markets, Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc.,
Goldman Sachs & Co., HSBC Securities (USA) Inc., JP Morgan Securities, Inc., Merrill Lynch Professional Clearing
Corp., Morgan Stanley & Co. LLC, Scotia Capital (USA) Inc., UBS Securities LLC, and Virtu Financial BD LLC are the
only Authorized Participants. The Sponsor and the Trustee maintain a current list of Authorized Participants. Gold
deposited with the Custodian must meet the specifications for weight, dimensions, fineness (or purity), identifying marks
and appearance of gold bars and as of January 1, 2020, must be produced by refiners that meet certain throughput and
tangible net worth requirements as set forth in “Good Delivery List Rules - Conditions for Listing for Good Delivery
Refiners” published by the LBMA.

So it sounds like,a bank deposits some gold, gets shares created, and then these are traded.
So as long as they don't need any more shares (= more gold), the spread can be pretty small.
Thanks!
Even in that case, the banks that arbitrage these markets can buy gold trade it for the ETF and then sell the ETF. These ETF's are well arbitraged. Obviously, a liquidity squeeze could cause NAV to drift... just like it did to bond ETF's a couple weeks ago. But usually the spread is very small, especially in the big boys like GLD and IAU.
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