Ultra-cheap gold ETF
Franklin Templeton is entering the gold ETF game, launching a low-cost gold product.
The Franklin Responsibly Sourced Gold ETF (FGLD) is built the same way as all other US gold ETFs.
It’s a grantor trust over allocated bullion, with bullion held by an independent custodian (JP Morgan).
Investors buying FGLD have a direct entitlement to gold. The fund claims to be responsibly sourced because it uses LBMA Good Delivery bars (discussion below).
FGLD charges 0.15%, making it the equal cheapest gold ETF.
Bernie’s commentary – how good delivery works
This ETF claims to be responsibly sourced because it uses LBMA Good Delivery bars. Franklin Templeton writes on its website: “The Fund defines responsibly sourced gold as London Good Delivery gold bullion bars that were refined on or after January 1, 2012.”
The LBMA is a consortium of gold dealers, banks, miners, refiners and transporters – list of members here – that run the world’s monopoly gold and silver bullion exchange in London.
The reason the good delivery framework is in place is that there is a lot of really nasty stuff that happens in artisanal gold mines in the third world. (See LBMA study here). The Good Delivery framework is designed to keep the nasty stuff out. (Not all artisanal mining is bad--it's also a big employer in the world's poorest countries).
Every gold ETF in the world uses LBMA Good Delivery bars. There is no other way to participate in the monopoly bullion exchange. As the LBMA notes on its website: “Only gold and silver bars that meet our Good Delivery standards are acceptable in the settlement of a Loco London contract.”
So in other words, Franklin Templeton is saying its gold ETF is “responsibly sourced” because it does what every gold ETF does: uses Good Delivery bars. By this thinking, every ETF is responsibly sourced and should be named as such.
If I'm honest, I don't like what Franklin Templeton is doing here. It's virtue signalling, yes. But more than that: it's exploiting investors' ignorance. There is no additional effort, and no distinction , between this ETF and every other gold ETF --contrary to what the fund name implies.
If there’s a silver lining here though it’s the fees. 0.15% is rock bottom. And given the higher costs of running a gold ETF – especially around custody – I don’t think fees can get much lower than this.