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Goldman Sachs Acquires Perth Mint Gold ETF

Goldman's Economists
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EDITOR NOTE: Goldman Sachs just finalized its acquisition of the Perth Mint’s physical gold ETF--ticker is now AAAU. Goldman Sachs’ move tells us that the bank is anticipating a potentially huge influx of investor funds seeking physical gold “exposure” (Goldman wouldn’t consider such an acquisition if it wasn’t going to bring in profits). The sad joke of it all is that should any ETF holder be in need of paper-to-gold conversion, such a thing just isn’t possible. In a sense, Goldman is something of a legal bucket shop for wannabee gold holders. ETF holders own no gold, just exposure to its fluctuations. Although this is better than no gold exposure at all, still, it's far from the real thing, far from real ownership, and it has zero accessibility to the yellow metal.

Goldman Sachs Asset Management has finalized its takeover of the Perth Mint’s $500m New York-listed gold ETF.

New custodian

But while the fee, listing venue, and investment objective are all unchanged, the original custodian, the Perth Mint, has been removed and, along with it, the ETF’s unique guarantee from the government of the State of Western Australia.

Also out with the Perth Mint is the ETF’s novel convertibility feature that allowed shareholders of the ETF to exchange their shares for delivery of physical gold in the form of bullion bars and coins issued by the mint.

In its place as custodian is the London branch of JP Morgan Chase – one half of a duopoly of banks (the other half being HSBC) that is home to an increasingly large and arguably alarming concentration (approx. 2,500 tonnes) of ETF-owned gold.

Rusty timing

GSAM’s acquisition of AAAU comes as gold sentiment appears to have turned negative on the back of growing confidence in the viability of Covid-19 vaccinations and ever greater clarity on the composition and direction of the incoming White House administration.

In November, gold ETFs recorded their first net outflows in twelve months and the second largest monthly outflows ever. Gold ETF holdings decreased by 107t over the month – equivalent to $6.8bn or 2.9% of assets under management – as the gold price had its worst monthly move (-6.3%) since November 2016.

Despite last month’s lacklustre performance, however, net inflows of 916t ($50.3bn) in 2020 remain well above the highest yearly amount on record, with total global holdings standing at 3,793t or $215bn at month-end, and gold continues to offer valuable portfolio attributes, including low correlations with other assets and inflation-hedging characteristics.

Commenting on the transaction, Michael Crinieri, GSAM’s Global Head of ETFs, said: “We are pleased to complete this transaction and enter into this market, where we believe our size, scale and expertise can provide considerable value to investors.

“GSAM is committed to a thoughtful expansion of our ETF suite through high-quality products that meet unique investor needs, and Goldman Sachs Physical Gold ETF is an exciting addition to our product roster.”

AAAU becomes GSAM’s twenty-first US-listed ETF.

Originally posted on ETF Strategy

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