Goldman Sachs completes acquisition of physical gold ETF

Dec 14th, 2020 | By | Category: Commodities

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

Goldman Sachs completes acquisition of physical gold ETF

Goldman Sachs has completed its acquisition of the Perth Mint’s physical gold ETF.

Renamed the Goldman Sachs Physical Gold ETF (AAAU US), the ETF’s fee is unchanged, at 0.18%, as is its listing on NYSE Arca.

The ETF also continues to provide the same fundamental function – namely physical exposure to gold bars meeting the specifications for “good delivery”, as defined by the London Bullion Market Association.

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.

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14 Comments to “Goldman Sachs completes acquisition of physical gold ETF”

  1. Tony Begg says:

    I specifically bought shares in AAAU because of the Government of Western Australia backing and the belief that the physical gold was Australian. This totally crept up on me – just saw the new name in the positions report of my Fidelity IRA. Tomorrow morning at open I am selling. Not a fan of Goldman Sachs.

    • Simon Smith, CFA says:

      Hi Tony. I think it has crept up on quite a few people (FYI, we did cover the story back in October, We weren’t privy to comms that were sent to investors in AAAU, but I guess there must have been some formal notification of this development. Clearly, though, the Perth Mint and its partners (e.g. white-label partner, distributor etc) could have done a better job of communicating all this to investors. However, the cynic in me would surmise that the final sale price was based on closing AUM at the point of the transfer of ownership, so the incentive would have been to minimize outflows! Simon Smith.

  2. William says:

    Does this mean Goldman Sachs is bullish on gold? It would appear so. And where will all the gold be stored now??

    • Simon Smith, CFA says:

      Hi William. Yeah, you’re probably right. I doubt GSAM would have acquired the fund if they did not think that gold flows were going to remain positive. But I guess gold is always going to continue to play some role in investors’ portfolios, regardless of current Covid-related and associated macro uncertainty. So it’s a good long-term bet for them.
      As for where the gold is going to be stored, I think the prospectus says that it will primarily be kept in JP Morgan Chase’s London vaults. Incidentally, one of the principal reasons people deploy gold is to access a safe haven and diversify their portfolios – but, ironically, there is a distinct lack of diversification at the custody level! The vast majority of ETF-related gold is stored in the vaults of JP Morgan or HSBC. I personally think this should raise some eyebrows. Simon Smith.

      • john says:

        This is disturbing. I bought the Perth fund to specifically avoid investing in a US company. So what is the best alternative if an investor is worried about gold being confiscated by a government? SGOL?

  3. matt says:

    Annoyed at this. This product is no longer the one I bought. Will be looking for an alternative.

    • Simon Smith, CFA says:

      Hi Matt. You’re not alone. It seems a few of our readers feel this way. Incidentally, we’ve seen similar things with index substitutions and ETF reorganizations where the investment mandate completely changes, forcing incumbent investors to either accept the new mandate or redeem / trade out, potentially triggering taxable events and incurring fees. Doesn’t seem quite right to me. Or, as we say here in England, it’s just not cricket! Simon Smith.

  4. Jimmy S says:

    I also find this disappointing conduct from the Perth Mint, this is highly unusual for them. It also goes against their vision and mission. Apparently the deal was announced in October, by Goldman Sachs. But there is no mention of this on the Perth Mint website, or any press release from their side that I can find that confirms this transaction. Surely they would have had a responsibility to inform all their AAAU customers of this sale, and change of the prospectus by Goldman Sachs?

    • Simon Smith, CFA says:

      Hi Jimmy. Yes – it appears this was kept somewhat under the radar(ish) with perhaps all but the bare legal minimum of investor comms! Please see my response to Tony Begg’s comment. Simon Smith.

  5. JD says:

    Yeah what a joke. There’s still a couple of decent ones left – Sprott, ZKB and the Royal Mint one

    • Simon Smith, CFA says:

      Hi JD. Yes, there are a few ‘alternative’ gold ETFs out there, such as those you’ve mentioned. Also, Axel Merk of Merk Investments got in touch with me to flag up the VanEck Merk Gold Trust ETF (OUNZ US). Might be worth a look too. All of them are definitely worth researching and comparing with the usual suspects. Simon Smith.

  6. Altan says:

    I wonder if the CFO of this ETF will resign the day before having to sign off on the year-end financials like with GLD. So GS is leaving a custodian that actually has gold as far as anyone can be sure anyone has gold and with a state government guarantee for JPM whose reputation precedes them abysmally when it comes to metals and the treatment and custody thereof. I’d be getting out too.

    • Simon Smith, CFA says:

      Interesting observations. I did read somewhere that World Gold Trust Services, sponsor of GLD, has had something like six CFOs in as many years.

  7. John says:

    I have owned this for a year and received ZERO notification of this transaction with GS and changing of terms. Outrageous.

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