SPDR Gold Trust (GLD), the largest and most popular gold ETF, is an investment fund that holds physical gold to support its shares. The stock price follows the price of gold and is traded like a stock, but the vast majority of investors are not entitled to claim the underlying gold. Gold exchange-traded funds (ETFs) expose traders to movements in the price of gold without having to buy the underlying physical asset. Gold ETFs are usually structured as trusts.
Under this structure, the ETF has a certain number of gold ingots for each ETF share issued. Buying an ETF share means owning part of the gold held by the trust. Holding GLD is clearly not the same as owning physical gold, it just serves different purposes. The GLD allows investors to play with physical metal without facing underlying costs or logistical problems, but it does not entitle investors to a real amount of gold.
The GLD helped to make the market more democratic, to a certain extent, but it also injected liquidity, fueling greater price volatility. No matter what Toussaint or anyone else says, there will always be skeptics, but as long as gold maintains its trajectory, GLD will continue to thrive. VelocityShares' long gold ETN (UGLD) aims to provide three times the return of the S%26P GSCI Gold ER Index in a single day. GLD does not generate any revenue, and since GLD regularly sells gold to pay its current expenses, the amount of gold represented by each stock will decrease over time to that point.
In other words, by buying GLD stocks, one could benefit from the rise in the price of gold and could lose money as the price of gold falls. In 2004, the launch of the publicly traded fund SPDR Gold Trust, with the symbol GLD, equalized the conditions for investment in gold by allowing a cheaper option than buying physical metal. The value of GLD shares is directly related to the value of the gold held by GLD (minus its expenses), and fluctuations in the price of gold could materially and negatively affect investment in stocks. In addition to allowing more investors to participate in the gold market, the GLD can also provide a gold investment vehicle that can be used by several funds and pensions that do not have the capacity to invest in physical ingots or physical ingot derivatives.
However, it is important to understand that owning physical gold is not the same as owning shares in a paper gold product or derivative.