Goldman Sachs, which runs India's largest physical gold ETF, has changed the rules on depositors in mid-stream to allow it to lease out the gold deposits that back ETF shares already issued.
As reported in the Business Standard, "This means they no longer directly hold all the gold their investors have paid for. This introduces an element of credit risk to these funds, say experts.
Goldman Sachs Asset Management runs India’s largest gold ETF. It issued a note to investors last month that the risk profile of the product had changed. “A situation could arise where the issuer is unable to return the principal physical gold to GS Gold BeES (their scheme) upon maturity or in case of an early redemption. Such inability to return physical gold could arise on account of liquidity problems or general financial health of the issuer,” said the note."
The article notes that since the Goldman Sach gold ETF is an unlisted security, it is not traded on the open market. Shares are redeemable only to the ETF itself.
The Goldman Sachs Gold ETF holds assets of 2.35 billion rupee ($39 million), which investors were told would be 100% backed by physical gold. How much of that is paper, now?