How Do I Invest in GLD?
GLD is the world’s largest exchange-traded fund that tracks the price of gold. Each share in GLD is physically backed by bullion held at HSBC’s vault in London.
Owning GLD or similar gold ETFs does not give investors access to physical gold; rather, it provides an easier way for them to speculate on its price movements.
What is GLD?
GLD began trading on the New York Stock Exchange Arca (NYSE Arca) in November 2004. It is an exchange-traded fund sponsored by SPDR Gold Trust and represents one of the world’s largest physically backed gold ETFs.
Many investors use gold as an inflation hedge or diversifier in their portfolios, and GLD provides a convenient, cost-efficient means to gain exposure.
GLD invests exclusively in physical gold bullion. The gold held by GLD is stored at HSBC’s vault in London; unlike some ETFs, ordinary shareholders cannot directly visit the vault and redeem shares directly for bullion; rather they must work through an “authorized participant.” These registered broker-dealers have entered into agreements with SPDR Gold Council (through World Gold Trust Services) in order to create and redeem GLD shares against bullion assets – this model is known as custody model.
How does GLD work?
GLD is an exchange traded fund (ETF) which tracks the price of gold, net of expenses. Each share represents an ownership share in physical bullion held by GLD’s trust; however, its quantity varies based on market conditions.
GLD shares are traded like stocks on numerous international stock exchanges, making it easy for investors to gain exposure to the gold market with minimal risk and without needing to deal with purchasing and storing physical gold.
However, potential GLD investors should keep certain considerations in mind before purchasing shares of GLD. For instance, as the fund sells off its holdings to cover expenses, their value decreases over time. Furthermore, since GLD shares don’t represent direct ownership of physical bullion as such may not provide a safe haven investment during economic or geopolitical crises. Therefore, potential GLD investors must read up on what exactly they’re investing before purchasing GLD shares.
What are the risks of investing in GLD?
GLD and other gold ETFs invest in trusts holding physical gold that are stored and moved around according to demand, leaving these funds exposed to many of the same risks associated with other equities and commodities in general, such as market risk, principal risk and liquidity risk. Investors in such funds do not own actual gold but instead only a paper proxy of it.
GLD’s link with its trustee, HSBC – a major global bank with multiple lines of business – increases counterparty and storage risks and negates one of its main purposes – protecting against systemic financial crises – so long-term investors may prefer finding another means of investing in gold.
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