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AAAU Worrisome Development

There is a worrisome development in the gold market. In mid-December Gold- man Sachs completed its $500 million purchase of the Perth Mint Physical Gold Exchange Traded Fund (tracked in markets under the symbol AAAU). The fund has been renamed to Goldman Sachs Physical Gold Exchange Traded Fund, still trading as the same AAAU symbol, notes Patrick Heller, editor of Liberty’s Outlook. Here are Heller’s concerns regarding AAAU:

When originally sponsored by the Perth Mint (a wholly-owned subsidiary of the government of Western Australia) in the summer of 2018, each share of this fund represented 1/100th of an ounce of gold, making it appealing and affordable to prospective investors. The Western Australia government explicitly guaranteed the integrity of this ETF.

This ETF will still provide the ability to purchase physical gold bars meeting specifications for “good delivery” as defined by the London Bullion Market Association. However, there are several possibly suspicious changes in the operation of this ETF. The Perth Mint stored the physical gold backing outstanding shares in “central bank grade” vaults in Western Australia – at the Perth Mint. With the change, responsibility for storage is being switched to the London, England branch of JPMorgan Chase.

This fund initially paid expenses in gold ounces, which minimized potential tracking errors between the prices at which shares traded and the price of gold. This policy may change with the new ownership.

Also, the government of Western Australia no longer guarantee the integrity of this ETF. When operated by the Perth Mint, it was possible for investors to redeem their shares to receive gold coins and bars struck by the Perth Mint. That option is no longer available.

With the change in custodial arrangements to JPMorgan Chase, the physical gold will be managed by an entity with multiple bank and staff convictions and plea bargains for manipulating precious metals prices. This was never a problem for the Perth Mint.

I suspect that the physical gold held by this ETF could now be leased or otherwise used to suppress gold prices in the future. There is also a risk that title to the physical gold in this ETF could be compromised by hypothecation, meaning it could be used as collateral to other creditors of the bank or could become subject to multiple claims of ownership.

It is possible that any previous ability of shareholders to convert their shares into physical gold products could be restricted by requiring a large number of shares for such transactions or could be eliminated entirely.

In my judgment, it is possible that this ownership change may have more to do with trying to manipulate precious metals prices than in a bank broadening its product line.

This example demonstrates some risks in thinking you own gold or silver because you have ownership of a “paper” form. Those who own commodity futures contracts, options, shares of ETFs, or certificates of ownership of physical metal stores in some government vault, and the like could someday find to their dismay that all they own is paper.

Editor’s Note: Patrick A. Heller is editor of Liberty’s Outlook, monthly, 1 Yr. $159, newsletter on rare coins and precious metals subjects published by Liberty Coin Service. The newsletter was named Best Investment Publication in 2020 and 2019 by Numismatic Literary Guild. Liberty Coin Service is a buyer of gold, silver, platinum and palladium bullion and quality rare coins. For more information, visit www.LibertyCoinService.com.


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