Financial giant Barclays has rolled out a new way to obtain precious metals: exchange-traded notes (ETNs). How do they work and are there hidden costs? Learn more in this episode of USMR Market Insights with Coy Wells.
What You Might Not Know About Gold ETNs – Video Transcription
Coy Wells: 00:00
The UK based multinational banking and finance company, Barclays, has recently announced that they are launching new precious metals based Exchange Traded Notes or ETNs. One will be for gold and one will be for silver. These ETNs will have zero fees unique in the world of precious metals exchange-traded products. They are going to compete against similar preexisting products like ETFs from Black Rock and State Street. On the surface, they seem like new convenient ways for consumers to purchase gold and silver, but if you buy one, do you really have your hands on a secure asset? To better understand that, let's first look at ETFs.
Coy Wells: 00:37
When you buy a gold ETF, you're putting your money in a fund that holds gold. ETFs are currently gaining steam hitting record highs this past September. According to the World Gold Council ETFs increased their gold holdings to almost 3000 metric tons. ETNS are similar to ETFs with one key difference. Unlike ETFs, the underwriters of ETNs do not have to hold the assets that the ETN is based on. This is where the problem might come in. When you're buying an ETN, you're not directly purchasing any gold. By their own nature ETNs are unsecured, while ETNs are traded based on the price of the underwritten commodities. The person you are giving your money to can hypothetically put your money in a variety of other assets. This is an inherent risk with a non-secured investment. If the underwriter or the note defaults, there is nothing else to back up the ETN. Since Barclays is charging zero fees, it's very likely that they plan the profit using money to buy alternative assets that they hope will produce revenue. Purchasing precious metals such as gold is typically a safe Haven move to secure your assets, but when you're buying these ETNs, you may be potentially exposing yourself to market risk.
Coy Wells: 01:47
If a recession hits a gold ETN may not be as safe as other means of owning gold. To learn more about the recession risk, please call the number on your screen to receive U.S. Money Reserve's latest special report, U.S. Stock Market Crashes: Lessons from the Losses. This report provides many of the causes of previous market crashes. So click on the link below, or call the number on your screen right now to get your copy and please give us your thoughts and share this video. If you're watching us from YouTube, please subscribe to our channel so you don't miss a single episode. I'm U.S. Money Reserve's, Coy Wells, and thank you for watching Market Insights.