iShares Gold Trust Suspends New Creations

On March 4,

IAU is not an exchange-traded fund. Rather, it is an exchange-traded commodity. It is not eligible to be registered as an investment company under the Investment Company Act of 1940. IAU is registered as a grantor trust under the Securities Act of 1933. When IAU first registered under the '33 Act, it was allotted a finite number of shares. By way of comparison, investment companies registered under the ’40 Act are allowed to continuously offer new shares.

As of the end of February, IAU had seen $1.38 billion of inflows for the year to date. As demand for IAU has surged in recent weeks, it has run up against its initial share allotment (the number of IAU shares outstanding has increased 25% year to date). Having hit this ceiling, iShares has been forced to file for approval to issue additional shares.

In its press release announcing this development, BlackRock stated that it expects its filing will be submitted before the close of market makers' normal settlement cycles (which would be six business days from March 4). So, in theory, this means that the suspension of new share issuance should have little effect on market makers' ability to quote prices for IAU's shares that are in line with its underlying net asset value. In practice, IAU's shares were trading at a modest premium to those of its rival gold-backed ETP SPDR Gold Shares GLD for much of the trading day on March 4. Typically, the two will move in unison.

While we believe that IAU is the best ETP option for investors looking for exposure to gold--owing chiefly to its lower fee relative to its peers--prospective buyers should exercise caution until this matter is resolved.