ETF Trends
ETF Trends

When anything gets insanely popular, the adoration often soon gives way to skepticism, criticism and scrutiny. State Street‘s gold exchange traded fund (ETF) is no exception to this rule.

SPDR Gold Shares (NYSEArca: GLD) has become the world’s second-largest ETF and sixth-largest holder of gold bullion, writes Rob for Wallaston Investments. As this fund grows, GLD opponents have spread rumors and spurious theories, which have confused some would-be investors, speculators and even some mainstream investors who lack the information to evaluate the claims. The result is a lot of head-scratching and a slower gold bull rally for all other gold investors. [Experts weigh in on gold.]

Two of the most common, but false, theories are these:

  • GLD is a Trojan horse designed to use stock-investor capital to short physical gold. It should be noted that GLD was created by the World Gold Council, the WGC is an association funded by the world’s leading gold miners. The goal of the fund was “to stimulate and maximize gold demand by investors,” according to the gold miners. That makes this theory a little far-fetched.
  • GLD doesn’t hold physical gold. A lot of powerful silent opponents like Central Banks and Wall Street would be the first to look into this idea, but they know the fund is legitimate. Investors will ultimately have to take the fund provider’s word that the fund actually holds gold and have faith in the business’s legitimate dealings. But note this: State Street is a huge institutional player, the Bank of New York is the trustee and HSBC is the custodian. It’s hard to imagine they’d get together and form a vast conspiracy.

But there are more theories, too:

  • There are claims that GLD is not audited; thus, not to be trusted. The theorists believe that the audit would magically make the investment vehicle a certainty. Nevertheless, GLD does have third-party audits by Inspectorate of its physical gold. Furthermore, the fund is very transparent and allows basically anyone to inspect the audit reports and other pertinent information about the fund on their website.
  • There are assertions that GLD can’t actually be purchasing as much gold as it claims because of the shortages of physical gold coins. GLD, like Central Banks, deal in 400-ounce bars, so that line of conspiracy talk is moot.

Conspiracy mongers thrive on the emotionally charged investor. It is always important to hold onto logic when investing so that you may maintain total emotional neutrality by ignoring greed, fear and other emotions that would distract you from growing your wealth. [Gold, dollar and the Fed in 2010.]

One thing conspiracy theorists got right was that GLD is not redeemable for physical gold. Still, the fund was never intended to be used that way – it’s not intended to replace physical ownership. GLD is simply a tracking vehicle, not a gold futures contract or a gold note. [One ETF could be exchanged for physical gold.]

Rob has visited the more vocal GLD critics and has revealed that many are actually in the physical gold coin business. Coin dealers see GLD as taking business away from traditional physical gold coins. However, that seems ridiculous since GLD has been helping gold prices, which would help the gold coin business. Other prominent conspiracy theorists are financial commentators that make a living on entertaining their audiences, who also seem to demand more conspiracy theories. [Gold’s setback temporary?]

For more information on gold, visit our gold category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.