The SPDR Gold Shares (GLD) ETF tracks the price of gold bars on the OTC market. As the price of real gold moves, so does the price of GLD. Investors can raise the price above or below the net asset value, meaning that individual stocks may be worth a little more or less than their equivalents of 0.093995 ounces of gold. SPDR Gold Trust (GLD), the largest and most popular gold ETF, is an investment fund that holds physical gold to support its shares.
The stock price follows the price of gold and is traded like a stock, but the vast majority of investors are not entitled to claim the underlying gold. The GLD stock price tracks the price of gold, mainly through arbitrage. When, for example, the price of GLD is quoted at a price higher than the price of gold, an Authorized Participant (AP) can make a profit. The AP can buy gold and deposit it with the Trustee, who creates shares in exchange for the AP selling them on the stock exchange.
This process will raise the price of gold and lower the price of GLD. The APs will seize the arbitration opportunity until the gap is closed. Naturally, arbitrage works the other way around when GLD is trading at a discount on the price of gold. In this situation, the APs will exchange the Trustee's shares to obtain gold that they can sell on the London bullion market.
GLD does not generate any revenue, and since GLD regularly sells gold to pay its current expenses, the amount of gold represented by each stock will decrease over time to that point. The spot price of gold is determined by the forces of the gold market in the 24-hour off-exchange (OTC) market, including spot and forward contracts and options and other derivatives, along with exchange-traded futures and options. The spot price of gold is determined by market forces in the 24-hour global off-exchange gold market and reflects the information available in the market at any given time. The value of GLD shares is directly related to the value of the gold held by GLD (minus its expenses), and fluctuations in the price of gold could materially and negatively affect investment in stocks.
Gold exchange-traded funds (ETFs) expose traders to movements in the price of gold without having to buy the underlying physical asset. Reverse gold funds have expected negative long-term returns because the price of gold generally rises in a fiat monetary system. The price of GLD is set by supply and demand on the stock exchange on which it is listed (NYSE Arca), just as the price of gold is set by the supply and demand of gold in the London bullion market. VelocityShares' long gold ETN (UGLD) aims to provide three times the return of the S%26P GSCI Gold ER Index in a single day.