real gold nuts though think that at some point maybe far off GLD and actual gold will part ways..
One night, insomnia had me reach over to the stack of GLD fund prospectus (why do I keep those!) and read the half inch thick thing cover to cover.
You would not believe what that document gives them legal right to do with YOUR funds and YOUR gold while they are “managing” it to increase THEIR profits. So I agree with you about the risk.
Basically most of the gold funds/ETF’s have no written obligation to merely buy and sell bullion to match the in/outflows of investor cash. They have all crafty ways to make extra money, by renting out your bullion, by loaning out your cash, all kinds of wacky stuff all involving COUNTERPARTY RISK for you the investor.
The exception is Central Gold Trust, the only gold fund/ETF I’m now willing to buy and sell.
From Wikipedia:
The Central Fund of Canada (TSX: CEF.A, TSX: CEF.U, NYSE: CEF) and the Central Gold Trust (TSX: GTU.UN, TSX: GTU.U, NYSE: GTU) are closed-end funds headquartered in Calgary, Alberta, Canada, mandated to keep the bulk of their net assets in precious metals, with a small percentage of cash. The Central Fund of Canada holds primarily a mix of gold and silver, while the Central Gold Trust holds primarily gold.
The custodian of the precious metals assets of both funds is the main Calgary branch of CIBC. Both funds are considered especially safe because of their published codes of governance and ethics, the Central Fund’s history of operation since 1961, and the funds’ simple prospectuses which equate shares of the closed-end funds with real units of ownership in the trusts. As of October 2009, the Central Fund of Canada held 42.6 tonnes of gold and 2129.7 tonnes of silver in storage, and the Central Gold Trust held 13.6 tons of gold in storage.
