The NAV of each GLD share is the NAV of the Trust divided by the total number of outstanding shares. 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. Gold exchange-traded funds (ETFs) expose traders to movements in the price of gold without having to buy the underlying physical asset. Gold ETFs are usually structured as trusts and can be purchased through Gold IRA brokers. Under this structure, the ETF has a certain number of gold ingots for each ETF share issued.
Buying an ETF share means owning part of the gold held by the trust. ETFs are traded like stocks, are subject to investment risks, their market value fluctuates and can be traded at prices higher or lower than the net asset value of ETFs. Reverse gold funds have expected negative long-term returns because the price of gold generally rises in a fiat monetary system. The graph suggests that buyers and sellers of GLD contribute to the directional trend in the price of gold.
The problem with all the counterparties involved in GLD is that they don't primarily deal with gold. 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. 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. Whether through arbitrage or providing liquidity to institutional clients, when APs create (exchange) shares, this puts upward (downward) pressure on the spot price of gold and increases (decreases) the inventory of GLD.
Since these ETFs contain physical gold, their prices move with the price of gold in the short and long term. In the case of GLD, shareholders own a segment of the fund's net asset value (NAV), which mainly contains physical gold. In many countries, certain investment funds are not allowed to directly own commodities, but they are allowed to own regulated securities such as GLD. VelocityShares' long gold ETN (UGLD) aims to provide three times the return of the S&P GSCI Gold ER Index in a single day.
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. Their incentive to create stocks was probably due to the fact that the price of GLD (occasionally) traded at a premium compared to the spot price of gold. 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.
