Surge in demand halts new share issuance in iShares gold ETF

Mar 4th, 2016 | By | Category: Commodities

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Global exchange-traded fund provider iShares has suspended the creation of new shares in its NYSE Arca-listed iShares Gold ETF (IAU) after a surge in investor demand caused a temporary exhaustion of shares currently registered with the US Securities & Exchange Commission.

The iShares Gold Trust, which experienced a larger amount of creation activity during February than it has in any one month over the last decade, saw its assets expand by $1.4bn year-to-date, bringing total AUM above $7.7bn (as of 4 March 2016).

Strong demand halts new share issuance in iShares’ gold ETC

The iShares Gold Trust experienced a larger amount of creation activity during February than it has in any one month over the last decade.

Investors have turned to safe-haven assets such as gold amid heightened market volatility across global equities since the beginning of the year.  It has seen the price of the yellow metal hit $1269.9 an ounce on 4th March, an annual high.

The Trust is classified as an exchange-traded commodity, and therefore is not eligible for registration as an investment company under the ‘40 Act. Rather, it was registered under the ’33 Act as a grantor trust. While the ’40 Act provides for the continuous offering of shares through new subscriptions in response to investor demand, under the ’33 Act, subscriptions for new shares in excess of those registered requires additional filings with the SEC.

The unexpected surge in demand this year has led to the temporary exhaustion of iShares Gold Trust shares currently registered under the ’33 Act.

New shares have been applied for at the SEC. iShares commented in a statement: “We are registering new shares to accommodate future creations in the primary market by filing a Form 8-K to announce the resumption of the offering of new shares. The ability of authorized participants to redeem shares of IAU is not affected.

“Authorized participants and other market makers have a range of existing tools to meet investor demand within normal settlement cycles, including existing holdings of IAU in inventory and use of hedging instruments to cover short positions. We expect that the filing of the 8-K will occur before the close of normal settlement cycles (six business days for registered market makers). This filing would enable resumption of normal creations.”

However, investors should be aware that the suspension means that the share price of the ETF may deviate from the price of its underlying assets — the physical gold — until issuance resumes.

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