Is the GLD ETF on verge of failure?

[murphy_p_t]

http://kingworldnews.com/kingworldnews/ ... _Gold.html

Or is this just fear-mongering designed to drive traffic to KWN?

[MediumTex]

Fear mongering.

[PP67]

Seems to be working...  GLD down =2.6% at the open...

[mortalpawn]

I believe the prospectus on GLD specifically says you can't show up in London and redeem shares for physical gold (unless you are JP Morgan).  Its an ETF, not a gold trust.  You can't redeem it for gold any more than I could take shares of SPY (the S&P 500 ETF) and redeem them for the 500 underlying stock shares.

Though it certainly has some risk above holding physical metal, it is probably offset somewhat by the convenience and lower cost of being able to trade it at any time in large quantities from any brokerage account.  Also it is backed by physical gold, not futures like some of the gold ETFs.

Here's a pretty balanced articles about some risks: http://www.forbes.com/sites/afontevecch ... d-as-gold/

I personally prefer to diversify my ETF holdings across several ETFs such as: GLD, IAU, GTU, SGOL - just in case one does go bad some day.  Its the same reason I have two brokerage accounts, and spread my mutual fund investments across several index funds from different companies.  None are likely to fail, but why lose it all if one does?

[Ad Orientem]

Fear mongering.

+1

[iSixty]

I believe the prospectus on GLD specifically says you can't show up in London and redeem shares for physical gold (unless you are JP Morgan).  Its an ETF, not a gold trust.  You can't redeem it for gold any more than I could take shares of SPY (the S&P 500 ETF) and redeem them for the 500 underlying stock shares.

Though it certainly has some risk above holding physical metal, it is probably offset somewhat by the convenience and lower cost of being able to trade it at any time in large quantities from any brokerage account.  Also it is backed by physical gold, not futures like some of the gold ETFs.

Here's a pretty balanced articles about some risks: http://www.forbes.com/sites/afontevecch ... d-as-gold/

I personally prefer to diversify my ETF holdings across several ETFs such as: GLD, IAU, GTU, SGOL - just in case one does go bad some day.  Its the same reason I have two brokerage accounts, and spread my mutual fund investments across several index funds from different companies.  None are likely to fail, but why lose it all if one does?

You are correct about not being able to redeem your GLD "shares" for gold.  According to the prospectus, you may only redeem in one or more "baskets."  A basket is a 100,000 shares, which is worth almost $13 million. So, unless you are a big player, redemption is not an option.

However, you are incorrect about GLD not being a trust.  As you say, it is an ETF, but it is organized as a grantor trust.  Its prospectus clearly says so.  As a trust, its shareholders are taxed differently and do not possess the rights that shareholders of a public corporation possess.

As far as risk goes, with GLD and other ETFs, you own paper, not gold.  The other surprising thing is that the prospectus says that the "amount of gold represented by the shares will continue to be reduced during the life of the Trust" as a result of operational expenses, since GLD doesn't generate any revenue.  The prospectus doesn't say "may" be reduced.  It says "will" be reduced.

Finally, the GLD prospectus says outright that neither it nor the custodians of its gold are required to insure the gold, nor are they required to segregate it.

So, yes, there is considerable risk.

I know some of this information is surprising, but there is no need to take my word on any of this.  Anyone interested can read the prospectus for themselves (boring).  Just Google GLD Prospectus.  It's all there for anyone who looks.