Further Notes on Precious Metals ETFs

Last week I mentioned the US-dollar denominated Exchange-Traded Funds, the gold SPDR listed as GLD, whose custodian is JP Morgan, and the iShares silver ETF listed as SLV, whose custodian is HSBC Bank. As a cautionary note, these 2 banks are known as respectively among the largest gold and silver short traders in the market. This position is arguably not congruent with the interest of the investors purchasing these ETFs as investments in the metals themselves.

It has also been repeatedly noted that within the lengthy prospectuses of these two ETFs, important factors such as transparent disclosure concerning how much bullion is actually held and the changes in these holdings over time (they should be rising if net new investment is rising), is not disclosed by their prospectus and cannot be determined. As a result, though commonly recommended by many advisors, the shares should rightly be regarded as mere proxies for the metals, not certificates representing ownership of actual redeemable gold or silver. In a flash panic such as affected several ETFs recently or some other extreme event, knowing exactly what you own is important.

On the other hand, the recently-launched Canadian-managed (2010, by Sprott) US-denominated physical gold ETF listed as PHYS discloses its actual gold holdings, which are held and sequestered by the Bank of Canada. While its short market history and smaller comparative size make the shares of PHYS more thinly traded at present, for the more capital-protective and self-protective investor, the crucial aspect of actual ownership may be more important than its trading volume.

Disclosure: No positions