A Vote of Confidence
Posted By | April 11, 2016
Astute readers will recall my recent blog about gold-backed exchange-traded funds, or ETFs. Basically, these are stock shares that are backed by a supply of gold sitting in a vault somewhere. Now, I personally prefer to own the metal outright, a vote of confidence but, I appreciate the fact that demand for gold ETF shares tends to boost the price of the underlying gold. And as I pointed out earlier, many ETF investors eventually begin collecting physical gold as they become more knowledgeable about the metal’s many advantages.
I bring this up today because of a rather extraordinary recent development involving gold ETFs. In my earlier blog (“I Saw It Coming”), I noted how BlackRock, the world’s largest asset management firm, had run into trouble with its iShares Gold Trust (IAU), the second largest gold-backed ETF. Technical mistakes forced IAU to temporarily curtail its ability to keep its ETF shares priced in line with physical gold, forcing new buyers to overpay for the shares. IAU had to suspend the creation of new shares for a while. But here’s the twist: BlackRock wanted to own gold so much, it went out and bought $4 billion in shares of its competitor’s ETF, the SPDR Gold Trust (GLD).
That’s right, BlackRock wanted to invest in gold so much,
it bought up 13 percent of the larger GLD gold ETF. I mean, imagine if Ford suddenly purchased 13 percent of General Motors. That’s one huge vote of confidence! Now, BlackRock didn’t become a $4.6 trillion behemoth by bumbling around – it knows what it’s doing. And what it’s doing is making a huge commitment to gold. At the time of the purchase, gold futures had already climbed 19 percent year-to-date, but BlackRock must be anticipating plenty of more growth.
BlackRock bought a stake in its larger ETF competitor precisely because GLD is so much larger than IAU. You see, when you make a huge purchase of any asset, you’d like to do it without your purchase forcing prices higher. This is known as liquidity, and put simply, GLD is more liquid than IAU, so BlackRock got a better price by snapping up its competitor’s shares.
Well, it might make sense for giant investment firms to play games with ETFs, but as an individual investor, I prefer to stick with physical gold. The Augusta Precious Metals Gold IRA is an excellent vehicle for buying gold, an asset that historically retains its value in times of financial uncertainty, unlike paper “assets” such as currency and stock certificates. Plus, you get to deduct the contributions to your Gold IRA, making it even cheaper to own the physical metal. Take a hint from BlackRock and contact us today to set up your new Gold IRA. But don’t wait too long, because huge demand means prices will be going higher.
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