Alternative to 4GLD with option to have direct exposure to gold to lower risk

[aliceann]

I was recently investing monthly on 4GLD (Xetra-Gold) but due to recent KID related regulation not able to invest in it anymore. I found its KID and try to understand the risk in more details.

Here is a text from its KID:

3. What happens if Deutsche Börse Commodities GmbH is unable to pay out?

You are exposed to the risk that the issuer might be unable to fulfil its obligations in respect of the product, e.g. in the event of insolvency (over- indebtedness or illiquidity). The issuer is a special purpose entity. The only means available to the issuer to satisfy all delivery or payment claims resulting from the product will be the gold deposited by it and its gold delivery claims. This product does not provide you with any rights to the gold deposited or gold delivery claims, which are held solely by the issuer. The occurrence of various scenarios relating to this physical gold and the delivery claims may affect the issuer's ability to meet its obligations under the product terms. There is a risk that the gold and the issuer's gold delivery claims will not be sufficient to satisfy your delivery or payment claims. A total loss of your capital invested is possible. The product is a debt security and as such not covered by any deposit protection scheme.

I tried to understand the risk and took help of ChatGPT. It summarised the risk as follows:

ChatGPT

1. The 4GLD ETF is managed by Deutsche Börse Commodities GmbH, a company created just for this purpose.
2. If this company can't pay its debts or fulfill its responsibilities, investors might face problems.
3. The company's only assets are the gold it holds and the right to receive more gold.
4. Investors in the ETF don't have direct rights to the gold or the right to receive more gold.
5. If the company can't meet its obligations, the gold and gold rights might not be enough to cover all investors' claims.
6. In a worst-case scenario, investors could lose all the money they put into the 4GLD ETF.
7. The 4GLD ETF is not protected by any insurance or safety net, so there's no backup plan for investors if things go wrong.

For me still point 3 and 4 was not clear, so I asked for more simpler explanation. And if provided me below explanation, which helps me understand the risk more clearly.

ChatGPT: Sure, let's break down points 3 and 4 with simpler explanations and examples:

Point 3:

• The company managing the 4GLD ETF, Deutsche Börse Commodities GmbH, has two main types of assets:

1. Gold it already has: Imagine a big, locked room filled with gold bars.
2. Gold it can get in the future: Imagine they have signed agreements to get more gold bars later.

Point 4:

• When people invest in the 4GLD ETF, they don't get direct ownership of the gold or the right to receive more gold.
• Example: Imagine you bought a ticket to a movie. The theater has a certain number of seats, and they also have plans to add more seats in the future. When you buy a movie ticket, you don't actually own a specific seat in the theater or have any rights to the future seats. You just have a ticket that gives you access to watch the movie. Similarly, when you invest in the 4GLD ETF, you don't own a specific gold bar or have rights to the future gold bars; you just own a share of the ETF that represents a part of the gold held by the company.

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I wanted to share my learning with the community and ask some questions.

I've 2 questions with community:

1. In current situation, can Deutsche Börse Commodities GmbH go bankrupt?
2. Are there alternatives to 4GLD with more secure Gold invesment for NL resident?

Thank you.

 

[bible_boy]

@aliceann https://www.justetf.com/en/how-to/gold-etfs.html

https://www.coininvest.com/en/gold-bars/