Franklin Templeton Holdings Trust, under the ticker FGDL, is a gold fund that principally holds only gold bullion. However, this type of investment is subject to a range of risks and challenges due to fluctuating gold prices and other market factors. This article explores some of the key elements that investors should be aware of when considering an investment in the Fund.
Table of Contents
One of the most significant risks associated with the Fund is the volatile nature of gold prices.
Gold is considered to be less liquid than other commodities and can therefore suffer from substantial fluctuations. Investors should be financially able to maintain their investments and bear the risk of loss associated with this type of investment.
Adverse developments in gold bullion trading prices can affect the value of investments in the Fund.
Factors such as global gold supply and demand, exchange rate and interest rate volatility, and inflation expectations may lead to a decrease in gold bullion trading prices. Consequently, a decline in gold prices could have a negative impact on the Fund’s net asset value (NAV) and shares.
Economic events or crises can result in large-scale sales of gold, which could decrease the price of gold and the value of investments in the Fund.
For instance, the 2008 financial crisis led to significantly depressed gold prices due to forced sales and deleveraging by institutional investors. Future events or crises may similarly affect gold’s price performance and have an adverse effect on investments in the Fund.
The Fund’s gold bullion may be sold at low prices to cover expenses, which could result in a loss.
Since the Fund is not an actively managed investment and does not produce income to pay expenses, the Sponsor will not attempt to buy or sell gold bullion to protect against or take advantage of fluctuations in gold prices. This means that the Fund’s gold bullion may be sold when gold prices are low, leading to potential losses.
Temporary increases in gold prices due to purchases of gold bullion for the Fund may adversely affect the Fund.
Purchasing activity may temporarily increase the market price of gold, which would likely result in higher prices for the Fund’s shares. Consequently, the market price of gold may decline immediately after the Fund creates new shares, negatively impacting the value of the Fund.
The price of gold may also be affected by the sale of gold by exchange-traded funds (ETFs) or other vehicles tracking gold markets.
Large redemptions of existing ETFs or other vehicles can negatively affect gold bullion prices and the price and NAV of the Fund’s shares.
Substantial sales of gold by the “official” sector, which includes central banks, governmental agencies, and multilateral institutions, may also impact investments in the Fund.
If members of the official sector were to liquidate their gold assets all at once, or in an uncoordinated manner, demand for gold may not be sufficient to accommodate the sudden increase in supply to the market. This could significantly decrease gold prices and adversely affect investments in the Fund.
Furthermore, potential discrepancies in the calculation of the London Bullion Market Association (LBMA) Gold Price PM, a widely used benchmark, could impact the value of gold bullion held by the Fund.
If the LBMA Gold Price PM does not provide an accurate benchmark and varies from the price determined by other mechanisms, the Fund’s NAV and the value of its shares could be adversely affected.
In conclusion, investing in Franklin Templeton Holdings Trust’s gold fund carries a range of risks, primarily related to the volatile nature of gold prices and the various factors that can influence these prices. Investors should carefully consider these risks and their own financial situation before deciding to invest in the Fund.
Note that we may hold securities mentioned in this article. All data is based on recent SEC filings. Even though we have implemented various manual and automatic fact-checking and data acquisition processes, some incorrect information may have slipped through (false positive). Let us know if you find any inconsistencies!