HAI: Where is GLD’s gold stored?
Mazza: In vaults in London.
HAI: And, if somebody says, “Well, how do I know the gold is there?,” what's State Street’s response to that paranoia?
Mazza: That is a question that is often asked. With GLD, you are able to see a gold bar lift, which is an audited bar lift that has the number of bars inspection certificates right through www.spdrgoldshares.com. The custodian, HSBC Bank, keeps the bars in their London vault. They're dedicated GLD bars. You are able to actually go in and look at the current list of bars, and then even historical archives of the inspection certificates of bars that we've had in the trust.
HAI: Gold prices seem stagnant at best. Has the sugar high from QE3 worn off?
Mazza: There has been some prepositioning that occurred in the third quarter. We really saw a pop in the price heading into the actual QE3 event. And one of the other things I would note is that, throughout the third quarter, there were additional events that took place in the market that potentially brought about the ability for front-running. These were particularly coming out of Europe.
Also there were some particular drivers on the central banking side that did help to begin to move the price a little bit higher than before, before the actual announcement. There was somewhat of a component here of buying the rumor and then kind of now we’re seeing somewhat of a stagnation on the actual news itself, as investors begin to digest the next potential actions, out of central banks, such as the Federal Reserve and the ECB.
HAI: One of the surprises with QE3 was the open-ended nature of it. Can you really price that in?
Mazza: The Federal Reserve did commit to provide open-ended quantitative easing. But we again need to wait until the December meeting. We may need to go meeting-to-meeting going forward to see the amount of purchases that the bank is willing to do. We know that they're extending; the next decision is to decide if they're going to extend the Treasury program in addition to the mortgage-backed security programs.
One of the things that many investors have been looking at is tracking the assets of the Federal Reserve, and then looking at how gold and other precious metals have responded to that. While the Fed’s total assets are growing, the rate of change is somewhat slower than maybe people would have expected under all these events that are somewhat open-ended in nature.
This is going to require investors to continue to be focused on that component, but also beginning to look to see what are the other potential drivers of gold that could provide support for prices, whether or not we think about just the traditional supply/demand mechanisms that occur from the jewelry market, the technology market and industrial uses as well.
HAI: What would you say would be the chief concern of a gold investor right now?
Mazza: The largest concern is that investors should consider exactly what the scenarios could be from a fiscal and monetary policy side. We could move into an environment that could produce somewhat of a stronger dollar that could potentially impact the price of gold.
The Federal Reserve is not the only central bank that’s beginning to take extraordinary and monetary policy actions. So while we might be in an environment where we are looking to begin to increase interest rates potentially, or move beyond the current cycle that we’ve been in, the European Central Bank—based off of the situation that could begin to deteriorate in Europe—might really begin to need to ramp up some of their actions. We've seen [ECB President] Draghi making some comments that he’s willing to do so. That’s been supportive for risky assets for the equity market, for example. But that could begin to really feed through to the potential, again, for more inflation.