Gold Backed Securities

Gold backed securities combine the benefits of physical gold bullion with the trading liquidity of the securities market. A security issued in direct proportion to gold deposited in a vault, and usually offer a right of redemption, allowing them to be surrendered in return for the gold backing them. There is redemption fee which is relatively high to prevent gold conversion frequency. The dealing spreads are 0.5% on each purchase, and another charge on sale. Some stock exchanges impose extra charges on each transaction.

In addition it has to be noted that although the securities confer a right on the gold, it is not owned by the investor. The gold is owned by the trustees, who safeguard the entitlement of the beneficiaries under the trust. Such trust arrangements are costly, and this manifests itself in a monthly management charge, depleting the amount of gold backing the securities.

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