Share Creation For Gold Fund IAU Restored

iShares says suspension temporary, as gold demand requires new share registration with SEC.

sumit
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Senior ETF Analyst
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Reviewed by: Sumit Roy
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Edited by: Sumit Roy

iShares has resumed creations in the iShares Gold Trust (IAU | B-100) after a temporary halt Friday. The suspension in creations came due to strong demand in the fund, which led to "temporary exhaustion of IAU shares."

But the ETF issuer said this morning that it has registered new shares with the Securities and Exchange Commission in order to meet future creation demand. It also said that the suspension Friday didn't impact trading and redemptions in IAU.

Turbulence in financial markets had investors flocking to safe-haven IAU and the rival SPDR Gold Trust (GLD | A-100) in the first two months of the year. The two had inflows of $1.3 billion and $5.4 billion, respectively, through March 2, according to FactSet data.

February's inflows into IAU were the largest in a decade, and prompted iShares's move to suspend creations as it worked to register new shares with the Securities and Exchange Commission.

Structure Requires SEC Registration

As iShares points out, IAU is an exchange-traded commodity registered under the '33 Act as a grantor trust. That means it must register with the SEC when it wants a new subscription of shares.

That's in contrast to most ETFs―including nearly all other iShares ETFs―which are registered as investment companies under the '40 Act. The '40 Act structure "provides for the continuous offering of shares and does not require registration of additional shares as the fund grows due to investor demand."

Incidentally, GLD is also a grantor trust; however, it continues to function as normal. "Today GLD remains liquid, and we believe it has ample shares for our authorized participants," said Peter Tulupman, head of U.S. Communications for the World Gold Council. "We actively monitor our creations and redemptions to see that GLD’s registered shares are not exhausted."

iShares expected the resumption of normal creations for IAU to take place within the close of normal settlement cycles, or six business days.

In the meantime, to meet investor demand, market makers could have used their "existing holdings of IAU inventory and hedging instruments to cover short positions."

For the most part, during the suspension, IAU continued to trade as normal on stock exchanges. However, with the creation process temporarily suspended, there was the possibility it could have developed a premium to its net asset value―something investors should always keep an eye on.

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.