Gold & Silver ETFs: The Fine Print


These are exciting times for gold & silver ETFs.

Bloomberg reported this week that metal-backed ETFs accumulated more than $50 billion of bullion this year. And Nasdaq shows that iShares Silver Trust (SLV) has experienced a $188.2 million dollar inflow over the past 12 months.

Headlines excitedly shout about A Golden Opportunity and ETF Land’s Biggest Cash Machine, which further feed The Gold Fever of 2020. They also increase existing levels of FOMO, which may be influencing the Robinhooders’ interest in GLD and SLV, the two giants among metal-backed ETFs.

Clearly, many folks have hopped on the ETF train. And it’s likely many more will.

But before you ride that train? Here are a couple things to consider, in case you didn’t know.

With most ETFs, You Don’t Actually Own Gold – or Silver

That’s right, you own a claim on the entity that’s holding the metal, not the metal itself.

Most funds don’t offer redemption in physical metal, and the ones that do have a high cost to redeem. And while the ETF vehicle can be a good tool for short-term traders, it doesn’t offer the same protection as owning gold or silver outright.

Most precious metal ETFs are designed to track the dollar price of gold and silver. Arbitrage between the shares of the fund and the metal itself is what enables the fund to track the price of the metal.

What Do You Know About Counterparty Risk?

Counterparty risk refers to the possibility that the other party in an investment, credit, or trading transaction might not fulfill its part of the deal, and may default on their contractual obligations.

The counterparty risk on physical metals is extremely low. Gold & silver cannot go bankrupt. Bullion will never default on promises. This is absolutely true for any metal you hold at home. If you bury your metal in the backyard, there’s no counterparty risk. (Although there are other kinds of risk involved…loss, theft, and being uninsured).

However, once you head into the territory of gold as an investment, counterparty risk exists. And smart investors evaluate it.

Evaluating Counterparty Risk

Storing gold and silver in a professional depository?  The depository represents a counterparty to your asset and therefore introduces some risk. However, this risk is very low. And transparent, per the agreement you hold with them.

Counterparty risk applies to Monetary Metals’ True Gold Leases as well. In our Fixed Income program we pay interest on your gold. And we’re able to do so because there is a counterparty involved.

And just as there’s no such thing as a free lunch, there’s no such thing as a risk-free return. If you’re earning a return on something, it means you’re taking on some risk.

In our view, there’s nothing wrong with risk per se. As long as it is controlled, is transparently disclosed, and investors are compensated. Which is exactly how we run our Fixed Income program.

When the counterparty risk is unclear – or is not properly disclosed – it becomes difficult to effectively evaluate an investment.

A Hands-On Example

The New Way to Hold Gold

Investors can evaluate the level of counterparty risk of an ETF via its prospectus. Which we did recently. We chose the SPDR Gold Shares (GLD) prospectus for this exercise, and the results were pretty interesting.

To read about that journey, just download our free guide, The New Way to Hold Gold, from the gold banner at the top of this page. In it, we walk you through the GLD prospectus in search of the counterparties involved in that fund. Plus, we go deeper into the topic overall. The counterparty risk section starts on page 12 of the guide.

Full disclosure: we’ve looked through a few other prospectuses, and found some that are less of a scavenger hunt than GLD’s was. But the lesson here is that you can’t truly know how transparent their structure is until you attempt to read the fine print.

Secondly, to evaluate an ETF beyond the counterparty risk element, check out this article on Investopedia. Although that article’s focus is on ETF liquidation, the section on evaluating the ETF is helpful.

Where Are You Headed?

If, like us, you appreciate direct, clear, and transparent investment information & operations, consider this:

Monetary Metals runs The Gold Yield Marketplace, a transparent marketplace where our counterparties are clearly disclosed, and presented to our investors, after they’ve passed our thorough due diligence process.

It’s also where our clients earn interest on their gold and silver, generated by productive, gold-using businesses – day in, day out. Regardless of gold fever levels!

Make sure to subscribe to our YouTube Channel to check out all our Media AppearancesPodcast Episodes and more!

Additional Resources for Earning Interest on Gold

If you’d like to learn more about how to earn interest on gold with Monetary Metals, check out the following resources:

The New Way to Hold Gold

The New Way to Hold Gold

In this paper we look at how conventional gold holdings stack up to Monetary Metals Investments, which offer a Yield on Gold, Paid in Gold®. We compare retail coins, vault storage, the popular ETF – GLD, and mining stocks against Monetary Metals’ True Gold Leases.






Case for Gold Yield in Investment Portfolios

The Case for Gold Yield in Investment Portfolios

Adding gold to a diversified portfolio of assets reduces volatility and increases returns. But how much and what about the ongoing costs? What changes when gold pays a yield? This paper answers those questions using data going back to 1972.




Earn interest on your gold & silver!

Set up your account today.

Or schedule a call with a Monetary Metals Relationship Manager to learn more.

1 reply
  1. dclinde says:

    I walked away from precious metals etfs several years ago. It’s very scary when you think about it. When you might need the value of your precious metals most, there might not be anything there at all.

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