Skeptics have raised doubts over the trust’s management of its physical gold, with questions over how much is actually held. HSBC, the custodian, is very secretive regarding its vault. Earlier this year, CNBC’s Bob Pisani was allowed to see the vault only after surrendering his cell phone and taken in a van with blacked out windows to an undisclosed location. Once in the vault, Pisani held up a gold bar and explained they were all numbered and registered. Astutely, ZeroHedge noted the bar Pisani held up was missing from the current bar list, fueling further speculation and skepticism.
Toussaint defends GLD by noting they are regulated by the SEC. “We are filing 10-Qs [quarterly reports with the SEC], on a regular basis,” he said.
- An article on SPDR Gold ETF, by Augustino Fontevecchia, in Forbes, in the year 2011
SPDR Gold Shares claims that they are the world’s largest gold ETF ( Exchange Traded Fund ) backed by physical gold. It is listed and traded on the premier stock exchanges around the world, including Singapore, Hongkong, Tokyo and New York, since 2004. Total stock of gold in this trust is more than 900 Tonnes according to its website, valued close to USD 40 billion – which is updated on a weekly basis, regularly! It does not end there. . .
Their website also provides the information on where this gold is stored: “The gold bullion is held by the Custodian, HSBC Bank USA, in its London vault or in the vaults of sub-custodians” says the website.
They infact, publish the actual stock of gold held on this account, by providing the detailed Gold Bar List, which – hold your breath - runs into 1304 pages! The list contains the exact details of the original Bar Number, Name of the Refiner, Gross/Net weight of each Bar of gold along with the total stock held by them as on that date. This list is updated on a daily basis and displayed in their website. ( see above pic. )
They go one step further and get this stock held by the custodian certified on a periodical basis by a third party! “Inspectorate International Limited” verifies them and certifies the stock, quality and quantity, independently. A complete bar count is done once a year and a second round of random sample count is done in the same year. A certificate to this effect is issued by them and displayed on the website of this Trust for the benefit of the investors. ( see pic. below ):
“Doubt ! Like faith, it can be a unifying force” is the popular dialogue of the character Father Flynn in the movie “Doubt”. The investing public is alike, world over. We all make same mistakes, again and again. We put our faith on the Regulators & Governments for things they may not be directly responsible, legally speaking.
For example, SEBI never values the shares of the Companies prior to IPO or certifies the IPO price in any way. SEBI has repeatedly clarified this in many forums and in media. But, go to any nook and corner of India – investors will invariably pounce on SEBI for allowing such IPOs at high premiums. In a way it makes one think that we all need scapegoats, not money! We simply want to pass the buck.
Lets not forget for a moment that there was always an element of risk attached to the contracts traded by NSEL though it was projected as a risk free transaction which gives an assured return, by the market players. The regulator and regulations were always a grey area since beginning in this case. But, probably the “over-regulated” capital markets made many operators and financiers to take refuge in this product, which was very attractively packaged.
Brokers and investors are now asking the Government to redo the “Sathyam Act” again in order to gain the investor faith. Lets wait and see. Government is now taking corrective steps. Somehow, that reminds us of the police men who arrive in the climax of the movie, after everything is over. But, better late than never, as it is a matter of trust!
Our main concern at this juncture, is on the other product which is traded on the Stock Exchange platform. Gold ETF! Now don’t press the panic button and call your broker to sell all the stock of gold ETFs you have in your demat account. It is just a word of caution, to have a proper balanced asset allocation while investing, so that any such failure will not affect your portfolio in a big way.
There are 14 gold ETFs trading in NSE/BSE. As per BSE website, total ETFs Assets Under Management is close to Rs. 14,000 Crores as of December 2012, out of which 88 % is in Gold ETFs! Majority of this AMCs are backed or promoted by private banks/corporates and PSUs like SBI & UTI account for less than 40 %.
A glance at many of these AMCs” websites tells you a different story, totally in contrast to the website of SPDR Gold Shares ETF. None of these AMCs have uploaded the exact stock of gold bars they have as on date against the outstanding ETFs and/or the inspection certificate. Even if they claim they have done it, we need Sherlock Homes to find it out for us. May be it is not mandated to display it prominently, we do not know. But to an average investor who is scared of stock markets and put in his small savings into the Gold ETF, the disclosure could be much more transparent than it is now, if we want to instill confidence in his/her mind.
It is high time that the Exchanges and the Regulator mandate the AMCs of these ETFs to upload the Stock List on a daily basis and the third party Inspection Certificate done by an independent agency on a quarterly basis, prominently in the first page of their respective websites. Surprise inspection by the Exchanges and the Regulator at frequent intervals also will boost the confidence of the investors.
As of now everything seems to be alright with the Gold ETFs. But, let us not wake-up late every time, after the problem erupts. Let us take pro-active measures so that an excellent product is not misused and investors chased away from it!
