GLD shares aim to match the price performance of gold bars, as they are listed in London. Gold provides a natural hedge against inflation and is considered a safe investment during economic downturns. While gold ETFs can be a good investment, they carry a great deal of counterparty risk inherent to their chain of custody. And this risk will only increase proportionally with systemic uncertainties.
This is one of the biggest risks associated with gold ETFs, according to Business Insider and Forbes. Counterparty risk exists when there is a possibility that another party to an agreement will not fulfill its part of the agreement. With so many institutions involved in the ETF process, the main risks faced by counterparties must be taken into account. 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.
If any sub-custodian who temporarily holds gold does not act with due care in keeping the Trust's gold ingots, the ability of the trustee or custodian to recover damages against such sub-custodian can only be limited to resources, if any, under applicable English law or, if the sub-custodian is not in England, under other applicable law. SPDR Gold Trust (GLD), the largest and most popular gold ETF, is an investment fund that holds physical gold to support its shares. 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. Owning shares in a gold ETF is not the same as owning physical gold, and ETFs cannot reproduce the security offered by physical gold.
The trustee, with the approval of the Sponsor, may employ one or more custodians selected by the Trustee for the custody of gold and for services related to the deposit and delivery of gold. For example, let's say you want to buy shares in one of the world's largest and most popular gold ETFs, the SPDR Gold Trust (GLD).