Alarming Developments in GLD ETF Reaffirms Need to Own PHYSICAL Gold / Commodities / Gold & Silver 2020
Theworld’s largest gold exchange traded fund (ETF) seems to be having a lotof trouble when it comes toaccounting.
TheSPDR Gold Trust (GLD) recently appointed its 6th chief financial officer since2014. And the problem of finding and keeping executives who are willing tocertify the Fund’s accounting does not appear to be the only reason for concernat GLD.
Thetiming of the most recent CFO departure is particularly troubling. Laura Melmanleft one day prior to the Fund’s financial year end.
TheWorld Gold Council, which is behind the SPDR Gold Trust, says her “departuredid not arise from any disagreement on any matter relating to the operations,policies, or practices of the SPDR® Gold Trust.”
However,Melman didn’t sign off on GLD’s annual 10-K filing before departing, eventhough, presumably, she had the filing all but completed.
Thatsignature had to be made by Brandon Woods, who was in his first day on the job.
TheWorld Gold Council has not commented as to why there is so much troubleretaining CFOs. This much turnover is often a sign of serious problems.
Thelong-time auditor of the fund, KPMG, didn’t exactly inspire confidence in the10-K filing. The accounting firm flagged the filing with a “Critical AuditMatter.”
Theauditor included the following explanation:
We identified the evaluation of the evidence pertaining tothe existence of the gold holdings as a critical audit matter. Given the natureand volume of the gold holdings, subjective auditor judgment was required toevaluate the extent and nature of evidence obtained to assess the quantity ofgold held by the custodian as of September 30, 2020.
Translation– KPMG had to use subjective judgement rather than objective evidence andrecords when attempting to confirm exactly how much physical gold is actually held by thefund.
Thefund’s auditors aren’t the only ones who appear uncertain about the inventoryheld by GLD. Gold bugs have long questioned whether it can account for all ofthe physical metal represented as owned by the trust in its filings.
Thefund reports adding 348 tons of physical gold between January and July of thisyear. It appears as if a lot of the gold – 70 tons or more – was sourced fromthe Bank of England.
Hereis the concern…
Skepticsbelieve the gold sourced from the BoE is not owned. Rather it is leased andwill ultimately need to be returned to the central bank.
Inaddition to accounting red flags at GLD, investors should also consider therisk associated with who provides depository services. HSBC Bank is thecustodian of the gold. The bank stores GLD’s bars in its London vaults.
Thatmeans owning shares of GLD requires placing your trust in HSBC, arguably one ofthe world’s most crooked banks.
Financialadvisors and stockbrokers around the world often recommend buying shares of GLDto clients who are interested in gold. They view the shares as a perfectly goodproxy for owning physical bullion.
However,most will not even be aware of, or consider, the counterparty risks outlinedabove.
Investorsare better off buying actual bullion and storing it themselves. They can alsohold precious metals through a reputable depository that isn’tconnected to the banking system and offers segregated storage.
There’slittle good reason to put any trust in GLD’s parade of CFOs or in shady HSBCbankers.
By Clint Siegner
Clint Siegner is a Director at MoneyMetals Exchange,perhaps the nation's fastest-growing dealer of low-premium precious metalscoins, rounds, and bars. Siegner, a graduate of Linfield College in Oregon,puts his experience in business management along with his passion for personalliberty, limited government, and honest money into the development of MoneyMetals' brand and reach. This includes writing extensively on the bullionmarkets and their intersection with policy and world affairs.
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