The sudden surge of interest for gold-related exchange traded funds on safe-haven demand has lead to suspended creation of new shares for a BlackRock iShares gold ETF.
The iShares Delaware Trust Sponsor LLC has temporarily suspended the creation of new shares of iShares Gold Trust (NYSEArca: IAU) until additional shares are registered with the Securities and Exchange Commission, according to a press release.
Potential investors should note that this suspension does not affect the ability to trade IAU on stock exchanges, so investors can still buy and sell shares of the ETF. However, due to the temporary suspension, IAU’s price can diverge from its net asset value, or trade at a premium to physical gold prices if investment demand continues unabated.
Moreover, the suspension does not affect the ability of Authorized Participants to redeem shares of IAU, so the ETF may not experience wide discounts to NAV in the event of a sudden sell-off.
The suspension comes off one of the largest inflows into IAU in a decade. Since the start of 2016, global volatility has triggered a surge in demand for safe-haven assets like gold. Consequently, IAU has attracted a net $1.4 billion year-to-date, with February marking its largest creation activity in 10 years.
“Though concerns about an economic slowdown partially abated mid-month, risk-off related ETFs dominated the top gainers in February,” Todd Rosenbluth, director of mutual fund and ETF research at S&P Capital IQ, told InvestmentNews.
Last week, Deutsche Bank advised investors to keep holding gold to hedge rising economic risks and potential market swings. [Gold ETFs Can Help Safeguard a Portfolio]
To understand why IAU has suspended share creations, investors should know how the gold ETF works. Since IAU tracks a basket of physical gold assets stored in a vault, the ETF is not registered like other investment companies under the ’40 Act – ’40 Act funds, like stock and bond ETFs, provide continues offering of shares and does not require registration of additional shares to grow. Instead, IAU is registered as a grantor trust under the ’33 Act. Consequently, under the ’33 Act, subscriptions for new shares in excess of shares already registered require additional SEC filings.
Due to the sudden spike in demand for gold assets, IAU has met its share creation quota.
“We are registering new shares to accommodate future creations in the primary market by filing a Form 8-K to announce the resumption of the offering of new shares,” according to iShares.
IAU should resume normal creations in six business days.
“We expect that the filing of the 8-K will occur before the close of normal settlement cycles,” according to iShares.
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.