The increase in haven demand in 2016 has brought investors close to gold-based investment funds instead of physical gold. Funds have seen inflows since the start of 2016, without any significant outflows. This is remarkable after three years of carnage in precious metals prices. BlackRock’s fund, the iShares Gold Trust ETF (IAU), is currently trading significantly above its NAV (net asset value).
IAU focuses on exposure to gold as a commodity rather than shares of gold-mining stocks or any other form of gold. The fund increased its number of shares in February due to mounting gold demand. Almost 25 million shares were issued from February 19 to March 3, 2016, catering to fund inflows. The shares issued were worth $296 million.
Penalties and damages
However, when this figure crossed the registered number, BlackRock stopped selling new shares for the fund. Additional shares were to be issued only after the required approval from the Securities Exchange Commission (or SEC). BlackRock said that it would compensate investors for their damages due to this discrepancy on the part of the fund’s management. It also said that the penalty to the SEC would be paid.
As the fund is based on a commodity, any significant deviation from the commodity price may be a loophole, as other market players could take undue advantage of such opportunities.
On March 3, when IAU stopped trading, its price was $12.17 per share. Later the price climbed to $12.37.
IAU has risen about 18% on a year-to-date basis. Most mining stocks have also followed gold’s rally north. Such equities include AngloGold Ashanti (AU), Pan American Silver (PAAS), and Barrick Gold (ABX). These three companies make up 12.8% of the VanEck Vectors Gold Miners ETF (GDX). GDX has risen about 6% in the last month.