The SPDR GLD Prospectus
The SPDR GLD Prospectus
One method for buying gold is to use an Exchange Traded Fund (ETF). ETFs are digital contracts nominally backed by gold but are not actually. One of the most recognizable ETFs is the SPDR GLD, often simply referred to as GLD.
The SPDR GLD prospectus defines how much gold that a speculator into GLD can expect to receive when cashing in on their GLD shares.[1]
Update March 15, 2024: The prospectus was updated in 2022, with some of the page numbers changing. The new page number will be in parenthesis.[1A]
GLD is not backed 1:1 with physical gold. In fact, shares are not even redeemable in gold. Per the first pages of the prospectus,
“The Shares may be purchased from the Trust only in one or more blocks of 100,000 Shares (a block of 100,000 Shares is called a Basket).
…
The Shares are neither interests in nor obligations of the Sponsor, the Trustee or the Marketing Agent and may only be redeemed by or through an Authorized Participant and only in Baskets.”
Page 7 (12) of the GLD prospectus indicates that the shares will be continuously devalued over time.
“The amount of gold represented by the Shares will continue to be reduced during the life of the Trust due to the sales of gold necessary to pay the Trust’s expenses irrespective of whether the trading price of the Shares rises or falls in response to changes in the price of gold.
Investors should be aware that the gradual decline in the amount of gold represented by the Shares will occur regardless of whether the trading price of the Shares rises or falls in response to changes in the price of gold.”
The Prospectus states that the gold price is deflated by “vehicles tracking the gold market” (derivatives/ETFs) instead of the trade of actual gold. The GLD trust does not have to redeem the shares of GLD with physical gold. Page 9 (12) states,
“The price of gold may be affected by the sale of gold by ETFs or other exchange traded vehicles tracking gold markets.
To the extent existing exchange traded funds, or ETFs, or other exchange traded vehicles tracking gold markets represent a significant proportion of demand for physical gold bullion, large redemptions of the securities of these ETFs or other exchange traded vehicles could negatively affect physical gold bullion prices and the price and NAV of the Shares.
(Page 14)
Redemption orders are subject to postponement, suspension or rejection by the Trustee under certain circumstances.
The Trustee may, in its discretion, and will when directed by the Sponsor, suspend the right of redemption or postpone the redemption settlement date (1) for any period during which the NYSE Arca is closed other than customary weekend or holiday closings, or trading on the NYSE Arca is suspended or restricted, (2) for any period during which an emergency exists as a result of which the delivery, disposal or evaluation of gold is not reasonably practicable, or (3) for such other period as the Sponsor determines to be necessary for the protection of Shareholders. In addition, the Trustee will reject a redemption order if the order is not in proper form as described in the Participant Agreement or if the fulfillment of the order, in the opinion of its counsel, might be unlawful.”
The gold is not actually owned by the person who thinks that they own it. Page 19 (20) states,
“Prior to initiating any creation or redemption order, an Authorized Participant must have entered into an agreement with the Custodian to establish an Authorized Participant Unallocated Account in London, or a Participant Unallocated Bullion Account Agreement. Authorized Participant Unallocated Accounts may only be used for transactions with the Trust. An unallocated account is an account with a bullion dealer, which may also be a bank, to which a fine weight amount of gold is credited. Transfers to or from an unallocated account are made by crediting or debiting the number of ounces of gold being deposited or withdrawn. The account holder is entitled to direct the bullion dealer to deliver an amount of physical gold equal to the amount of gold standing to the credit of the account holder. Gold held in an unallocated account is not segregated from the Custodian’s assets. The account holder therefore has no ownership interest in any specific bars of gold that the bullion dealer holds or owns. The account holder is an unsecured creditor of the bullion dealer, and credits to an unallocated account are at risk of the bullion dealer’s insolvency, in which event it may not be possible for a liquidator to identify any gold held in an unallocated account as belonging to the account holder rather than to the bullion dealer.”
Additionally, baskets of GLD can be created with cash instead of physical gold. Page 20 (21) states,
“On any business day, an Authorized Participant may place an order with the Trustee to create one or more Baskets. Purchase orders must be placed by 4:00 PM or the close of regular trading on NYSE Arca, whichever is earlier. The day on which the Trustee receives a valid purchase order is the purchase order date.
By placing a purchase order, an Authorized Participant agrees to deposit gold with the Trust, or a combination of gold and cash, as described below.”
Further emphasizing that GLD is not backed by gold is found on page 28 (29).
“The Trust issues Shares in Baskets to Authorized Participants from time to time in exchange for deposits of the amount of gold and any cash represented by the Baskets being created. A current list of the Authorized Participants is available from the Trustee and the Sponsor. Because new Shares can be created and issued on an ongoing basis, at any point during the life of the Trust, a ‘distribution,’ as such term is used in the Securities Act, will be occurring.”
In fact, the shares of GLD do not even represent gold at all to the average investor. Per page 29 (30),
“The Trustee is authorized under the Trust Indenture to create and issue an unlimited number of Shares. The Shares represent units of fractional undivided beneficial interest in and ownership of the Trust and have no par value.”
The amount of GLD shares can be inflated by cash, does not represent physical gold, and artificially inflates the supply of gold- decreasing gold’s price. The Federal Reserve, by creating money ex nihilo (QE) and thereby lowering interest rates, combined with ETFs and derivatives, has redirected investors from physical gold to the pumped up stock market and derivatives/ETFs. All the while, central banks have been buying physical gold[2] per Basel III: Finalising post-crisis reforms, paragraphs 96 and 148 B.[3]
If the central bankers are banking on physical gold, why would one invest in a gold ETF not backed by gold?
[1] http://www.spdrgoldshares.com/media/GLD/file/SPDR-Gold-Trust-Prospectus-20170508.pdf Bad link
Link to the old prospectus: https://www.ssga.com/library-content/pdfs/etf/us/SPDR_GOLD_TRUST_PROSPECTUS.pdf
[1A]https://www.spdrgoldshares.com/media/GLD/file/GLD_Prospectus_10042022_as_filed.pdf New Prospectus, published in 2022 (updated March 15, 2024).
[2] https://schiffgold.com/key-gold-news/chinas-most-recent-gold-buying-spree-tops-100-tons/
[3] https://www.hamiltonmobley.com/blog/basel-iii-banking-regulations
