SPDR Gold Trust

Moat: 1/5

Understandability: 1/5

Balance Sheet Health: 5/5

SPDR Gold Trust is a passively managed investment vehicle that holds physical gold and seeks to reflect the price of gold bullion.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview: GLD, the SPDR Gold Trust, is an exchange-traded fund (ETF) that offers investors exposure to the price of gold bullion. Unlike a company that produces gold, GLD doesn’t mine or create any gold. Instead, it holds physical gold bars in vaults and issues shares representing claims on that gold. Its primary goal is to track the performance of the spot price of gold, less the Trust’s expenses.

Revenues:

The Trust’s “revenue” is primarily derived from interest on its cash held, along with modest gains or losses on its sale of gold to pay expenses. No revenue is generated in relation to a company’s operations. * Unlike a typical company, GLD does not generate revenue through selling a product or service to consumers. * The Trust’s income is not based on the performance of a business, rather, it is inherently based on price fluctuations of gold.

Industry:

 * The gold market is characterized by high liquidity, considerable volatility, and sensitivity to a variety of global economic and geopolitical factors.
 * In 2022, the average annual price of gold was $1,801, the highest level since 2012. Price volatility was significantly influenced by Federal Reserve monetary policy decisions, along with the conflict in Ukraine.
 * Major buyers of gold are central banks, whose purchasing behavior is primarily strategic. Investment demand, however, remains critical to pricing. The 2023 gold price has been influenced by weaker US dollar, and elevated bond yields.

Margins:

As a Trust with minimal operational requirements, SPDR Gold Trust is not set to report a margin or profitability from a sale of a product. Instead, the fund’s objective is tracking the price of gold.

  • Most expenses are related to running the fund and storing the gold, and these are kept low to ensure the share price aligns with the market price.

Competitive Landscape:

As GLD is not a producing company but rather an investment vehicle, its competitive landscape differs from that of corporations. Its competition includes other gold ETFs, and exchange-traded products based on gold, as well as direct holdings of gold bullion.

  • It is one of the largest and most actively traded gold ETFs in the world.
  • The differentiating factors between gold ETFs are typically low expense ratios and high liquidity, and other specific aspects, including investment and tax structure.

What Makes GLD Different:

SPDR Gold Trust offers a convenient and liquid way for investors to gain exposure to gold prices without buying the physical asset. It’s low operating costs and the way it trades makes it easier to understand and invest in gold and its price fluctuations than many alternative methods. It does however have high fees when compared to the lowest-cost competitors.

  • While its price closely tracks spot gold, it does not offer diversification, and it has fees. * It provides exposure to fluctuations in gold prices but does not provide a way to benefit from operational improvements of the gold mining companies, or their production potential.
  • Investors in GLD should not expect a return from the business as the business is simply holding the gold and tracking its price.
  • It is also subject to the risk of gold price fluctuations.

Financials in Detail:

  • Income Statement Analysis: The trust doesn’t have a traditional income statement. Its main sources of “revenue” are from:

    • The trust earns a minor income from interest and from sales of gold made to pay for expenses. This revenue typically doesn’t exceed operating expenses, and can sometimes generate losses as well.

  • Balance Sheet Analysis: GLD’s balance sheet primarily consists of:

    • Gold held for investment in vaults. This is the major asset.
    • A small amount of cash. Used for expenses of the fund.
    • Small liabilities for operating expenses (including the fee to the sponsor of the fund).
    • As per recent financial statements in the 10Q report, GLD had 29 million oz of gold in their holdings as of June 30th 2024.

The value of the asset (gold) is extremely high relative to any liabilities. The financial performance of this ETF is mainly influenced by how the gold price is changing relative to its expenses, which are typically extremely small. This makes the balance sheet very very healthy.

  • Cash Flow Statement Analysis:

    • GLD’s cash flows are extremely simple; since the ETF doesn’t do active investing or conduct a business operation in the traditional sense. The only changes in cash are related to the purchasing or redemption of gold, which is done to manage the fund to stay within its desired goal of price tracking of the underlying metal, and the money coming in and out of cash from operational expenses.

Moat Assessment: 1 / 5

  • GLD’s moat is nonexistent. An “economic moat” is a sustainable competitive advantage that enables a company to protect its earnings and ward off competitors. GLD is an ETF and does not have a moat. It is an investment vehicle that tracks gold price, and this is not a moatable business. It does not have barriers to entry, has a lot of competition, and the underlying asset it is dependent upon is not exclusive to it, and is heavily dependent upon external factors which do not derive from the Trust.
  • Therefore, GLD’s moat receives a rating of 1 out of 5. It is at the bottom of the list for competitiveness, due to the nature of its business. It doesn’t really participate in value creation itself, since it relies on other industries to create value.

Legitimate Risks that Could Harm the Moat/Business and Business Resilience:

  • Gold Price Volatility: This is the primary risk for GLD investors. The price of gold is prone to large price fluctuations due to various factors including investor confidence, market cycles, and geo-political events. A major drop would negatively impact the fund’s value.
  • Expense Ratio: Though it is a small factor, a major increase in the fund’s operating expenses may negatively impact investors’ returns.
  • The expense ratio is around 0.4%, but it’s worth noting that there are many similar ETFs that have expense ratios that are significantly lower, almost 10 times lower.
  • Competitor ETFs: New and more efficient ETFs and alternative options may decrease GLD’s popularity, even with new innovations in tracking gold.
  • Underlying Metal Risk:

In cases of extreme circumstances, like war or revolution, any assets backed by an asset (even gold) will be at high risk. The value of gold would not be different from the value of other assets. Any risk to that would be a risk to this type of ETF as well.

  • Inability to Track Gold Price Perfectly: Due to trading hours, and expense ratios and operational costs, tracking will never be perfect.
  • Lack of any Operational Benefit: Since it’s a gold-tracking ETF and not a mining company, no operational strategy can improve its performance, whereas mining and gold-production companies can make positive changes to improve their returns.

Business Resilience: Although the share value may fluctuate based on the price of gold, due to its very low operating costs, the fund itself would remain very resilient, since no major operational issues can bring the company down. It is therefore a very simple and resilient business.

Understandability: 1 / 5

  • GLD is very easy to understand.
  • Its entire purpose is to track the price of gold.
    • You simply look at the price of gold, and it tells you most everything you need to know about this ETF.
  • It gets the highest grade for understandability since there are no complexities to the business.

Balance Sheet Health: 5 / 5

  • GLD has a remarkably strong balance sheet. * It holds physical gold worth billions of dollars, and has a very small amount of liabilities related to its operating costs. * Therefore, it scores very high for balance sheet health, and gets the maximum rating, at 5 / 5. * It can easily fulfill all its obligations. It has no debt, and its costs are minimal.

Recent Concerns and Problems

  • There aren’t any recent concerns or controversies directly with GLD.
  • There is also nothing in the latest report that suggests this is a problematic company. All of this is not surprising, because its goal is purely to track the price of gold, and that is not really connected with the internal performance of the ETF itself.
  • Any news regarding gold may cause some volatility in share price, and the only recent news regarding that have included prices rising due to weaker USD and elevated bond yields.