A Brief Review of BlackRock’s IAU



IAU: The commodity following fund

The ETF market has grown tremendously in size over the past few years. The amount of money invested in these funds has increased by more than two-and-a-half times since 2009’s end.

The recent clutter in BlackRock’s iShares Gold Trust ETF (IAU) may have highlighted the fact that IAU is not a typical ETF. Instead, it is registered as an exchange-traded commodity.

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The difference between regular ETFs and exchange-traded commodities is that regular ETFs can create continuous shares and are not required to record growth in funds. However, commodity-based funds such as IAU are closely linked to the price of their respective commodities, and regulations require that the issuing company make a filing when it wants to create new shares in excess of already registered shares.

IAU and the SPDR Gold Shares ETF (GLD) are two of the most important funds that closely monitor price changes in gold. Above is a chart that shows their price performances over the past three months. Both funds have walked almost hand-in-hand.

The price changes in the precious metals impact not only these ETFs but also mining-based shares such as Yamana Gold (AUY), Gold Fields (GFI), and IAMGOLD (IAG).

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Operational pitfall

According to BlackRock, IAU was created in 2005 and has expanded by $1.4 billion since the beginning of 2016. The fund also issued additional shares in February, catering to the growing demand for gold. The fund stood at an approximate valuation of $7.7 billion at the beginning of March.

Such funds have to register additional shares in a timely manner so that higher demand doesn’t cause a halt in issuance. However, operational pitfalls are not uncommon. BlackRock faced such an operational issue with IAU at the start of March 2016.

Let’s look at the next article for further details on the IAU trading halt.


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