Question about IAU, GLD, & GTU

[chrikenn]

When you own a mutual fund or ETF such as a Vanguard index fund, you actually own a fractional share of the actual securities held by that fund.  Therefore, if the fund manager---such as Vanguard---goes bankrupt, you don't actually lose your investments.  Yeah, it would probably be a major headache, but eventually you would be made whole.

Is the same true for gold ETFs like IAU, GLD, and GTU?  Take IAU for example.  If iShares were to go bankrupt, would all of my IAU holdings go poof and disappear, or do I actually own a fractional share of IAU's gold reserves such that I would eventually be made whole, like I would be if Vanguard went bankrupt?

Thanks.

[murphy_p_t]

food for thought:


http://www.runtogold.com/2008/12/a-prob ... -slv-etfs/

http://www.runtogold.com/2009/02/anothe ... e-gld-etf/

also http://crashjpmorgan.net/

[chrikenn]

Thanks for the reply, but that doesn't really answer my question.  The articles you posted are basically fear-mongering articles explaining that GLD & SLV ETFs are not good substitutes for owning the real, physical metal.  Maybe those articles have merit, but I already understand the pros and cons of owning paper gold as opposed to physical gold.

I would like to know what happens to IAU shareholders if iShares goes bankrupt.  I assume that the shareholders are protected, just like shareholders of Total Stock Market are protected if Vanguard goes bankrupt.

For the purposes of my question, we can assume that IAU does actually own the gold that it claims to, that it is pure, etc etc. (i.e., not buy-in to any of the fear-mongering points of discussion).

[Wonk]

You're probably not going to want to hear this, but the best thing to do is read each prospectus.  They're all different and contain their own weasel clauses.  Most gold etf's have a certain amount of physical gold in custody along with gold certificates and contracts.  Perhaps the most dangerous situation would be a case of fraud, where the amount of bullion is just not there.  In such an instance, you could be SOL.  Admittedly, it's a remote chance, but there is a counterparty to be concerned about.

[AdamA]

I am not 100% certain about this but here's my take:

You are right about IAU and GLD being similar to VTI or Vanguard Index funds.  You in, theory, should be okay if the parent firm goes broke (unless there's any fraudulent activity, as mentioned by Wonk).

GTU is different. It's a close-ended fund.  They hold something like 90% of the gold on their records in vaults that are regularly audited.  They're been around much longer than the gold ETF's (at least since the early 1980's, I think).  I believe that if a close-ended fund goes bankrupt, so do you. 

Maybe one of the more experienced PPers will correct me if I'm wrong.

Adam

[chrikenn]

I believe that if a close-ended fund goes bankrupt, so do you. 

Interesting.  Thanks for the input.

I actually have skimmed some of the prospectuses (prospecti?) but didn't find any immediately obvious answers.

If anybody could confirm/refute what Adam said about GTU (particularly if you can point to a source in the prospectus) I would greatly appreciate it!

[TBV]

The prospectus says that NAV is determined on the basis of the value of the gold on hand minus expenses and liabilities.  One would hope that the Trust will not incur an especially large liability, e.g. as a result of a lawsuit.

Once the NAV is determined, shareholders can redeem shares, but not by themslves.  That can be done only through "Authorized Participants." The prospectus also says that such redemptions may be suspended during an "emergency."