Welcome to our Friday mailbag edition!

Every week, we receive fantastic questions from your fellow readers. And every Friday, I answer as many as I can.

Last week, in an essay about the banking sector crisis, I wrote about gold as a way to hedge yourself against market turmoil.

And I put the SPDR Gold Shares ETF (GLD) on your radar as a way to do that.

[As a reminder, ETF stands for exchange-traded fund.]

But shortly afterwards, several readers wrote in with doubts about GLD…

You mentioned that GLD is backed by actual gold. However, my reading of financials shows that GLD DOES NOT BACK 100% of its securities by physical gold. An ETF like PHYS does in fact hold 100% of its asset value in physical gold.

– Chuck W.

GLD is not nearly as good as you mention. GLD has very little gold backing, according to the dollars invested in it.
GLD is an easy way to think you are in gold, but you are not.

– Charles P.

You have been recommending GLD as a safe vehicle for buying and storing physical gold holdings.

However, I have read elsewhere that the gold in GLD is stored on an unallocated basis. Isn’t it preferable to have the gold held on an allocated basis so as to reduce the potential for counterparty risk?

– Gary M.

Hi Chuck, Charles, and Gary. I appreciate your concerns. So let me address this as best I can.

Let’s start with GLD’s custodial arrangements…

GLD’s gold is held in JPMorgan Chase Bank and HSBC’s vaults in London. Twice a year, the gold bars are independently counted. These counts are carried out by Inspectorate International Limited.

Here is the latest certificate of the GLD gold bar count. Based on the September 30, 2022 random sample count, there were 75,411 gold bars of a purity between 99.50% and 99.99% and a weight of 30,324,447.6 fine troy ounces.

Both JPMorgan and HSBC also publish a daily list of current holdings. Here’s yesterday’s update from HSBC, listing 61,815 gold bars, and one from JPMorgan showing 12,642 bars. That comes out to 74,457 bars, or 29,565,492.9 troy ounces, in total.

GLD’s sponsor (creator) is World Gold Trust Services. It is fully owned by the World Gold Council. It generally visits the vaults at least once a year to inspect the gold.

GLD’s financial auditor also visits the vaults before signing off on its annual audits.

So, GLD’s backing is definitely “physical,” not “paper.”

Now, to address Gary’s concerns about the gold in GLD being stored on an unallocated basis…

As you probably know, with allocated gold, you are the outright owner of a specific physical bar or coin. There are no other claims to it.

With unallocated gold, you are not the owner of the gold. It remains the property of the third party.

To be clear, holding gold through an ETF means that there is no gold in your name. While the fund itself may hold allocated gold, the holders of units in the fund do not.

And in GLD’s case, its gold bars are indeed held in the name of the fund (on an allocated basis). Here’s an excerpt from the trust’s FAQ:

Gold held in the Trust’s allocated accounts is the property of the Trust and is not traded, leased or loaned under any circumstances.

The only two exceptions when GLD may hold some gold in an unallocated account are when it needs to pay its monthly expenses and gold redemptions.

And that’s really the most important thing to know…

GLD’s gold is not the property of the bank that is storing the gold. It can’t be used as part of a bank’s reserve. The trust owns its gold outright. The bank has no claim to it. It’s merely a custodian. Meaning, it’s paid a fee to store it.

A word to the wise, though.

Even though GLD is “physically backed” by gold, most investors won’t be able to redeem GLD shares for physical gold bullion. They can only sell them on the market. Only those who deal in blocks of 100,000 GLD shares can arrange to get that done.

The “physically backed” part just means that GLD shares are guaranteed by the actual metal sitting in the vaults. As of December 31, 2022, each GLD share represents about 0.09306953 ounces of gold.

This is something all gold investors should keep in mind. Because it’s not just GLD. With many gold ETFs, when you redeem them, you don’t get physical gold. You receive the cash equivalent.

That said, I believe GLD provides a great way to own gold without the hassle of storing it, transporting it, and keeping it secure. That’s, of course, as long as you don’t mind never seeing or touching the metal you’re buying.

For anyone who values holding actual gold, you could consider buying gold coins. Some of the more popular ones are American Eagles and Canadian Maple Leafs. I wrote about a simple way to buy gold coins in this essay.

I also provided a guide for buying physical gold yesterday, with the different forms it comes in, and how to make sure you’re buying from an authenticated source. If you haven’t read it yet, catch up here.

Next, reader Matt wants to know about an alternative source of nuclear energy…

Why does no one talk about thorium as an alternative source of nuclear energy? It is more energy dense than uranium and has a 50% lower half-life. I believe that some companies in India have been working with this as a possible solution for nuclear fission technology. Why can’t the U.S.?

– Matt F.

Hi, Matt! Thanks for writing in.

Indeed, thorium is a potential alternative to uranium as a nuclear fuel. It’s also three times more abundant than uranium – and could be a cheaper alternative.

Another benefit is that thorium produces less nuclear waste than uranium – and the waste it produces is less radioactive.

That’s a big advantage, given that nuclear waste is hazardous. If we don’t manage it properly, it could be a risk to the environment and human health.

That said, I feel there’s quite a bit of confusion about how thorium actually works. So, let me clarify a few key aspects here.

Thorium can’t in itself power a reactor. That’s because it does not contain enough fissile material to initiate a nuclear chain reaction… unlike natural uranium. “Fissile” just means ready for a fission reaction… As such, it must first be bombarded with neutrons to produce the highly radioactive isotope uranium-233.

And so we arrive at the crux of the problem…

Unlike the naturally occurring uranium-235, extracting uranium-233 requires a breeder reactor. Thorium needs to go through a series of nuclear reactions before its energy value is unlocked. This is complex and expensive.

Also, many breeders just don’t last long enough to do substantial, well… breeding. They fail. Often spectacularly so. Coming up with the right design, materials, and safety features is almost too difficult at this point.

In that sense, thorium has limitations as a nuclear fuel.

This is exactly why we haven’t adopted it as a power source in the U.S.

Keep in mind that we already have 92 nuclear reactors powering tens of millions of homes across the U.S. So there isn’t much enthusiasm to develop something that could take decades to harness economically and safely.

It would require prohibitive amounts of R&D investment. It would also require building an entire infrastructure. That’s risky, and, even potentially impossible without government backing.

That’s a big reason why most experimental thorium reactors today are being built in China and, as you mentioned, India. There, government support is alive and well.

But if I had to guess, these projects are complex even in India and China. I’m sure there’s a lot of compromising going on there… particularly in terms of safety.

Now, India has the largest supplies of thorium in the world (and relatively poor quantities of uranium). So it makes sense why they are working so hard to harness it. In fact, thorium is the only abundant energy source in India (apart from coal).

All that said, I may write more about thorium in these pages at some point. So I appreciate your bringing it up.

Finally, our last question this week is from Wayne, who wants to know if congresspeople are exempt from reporting their digital assets…

Love the research on congressional investment habits. I noticed no member reported any investments in blockchain projects. Are they exempt from reporting any investments in digital assets?

– Wayne P.

Hi Wayne. Thanks for your kind words and excellent question.

The answer is, no, they are not exempt from reporting investments in digital assets. In fact, every congressperson is required to report their purchases of digital assets by law. But based on their filings, very few are interested in making such investments (which is why I didn’t talk about it in that piece).

That should come as no surprise given the change in market sentiment towards cryptocurrencies last year.

2022 was a terrible year for cryptocurrencies… big or small. The crypto winter lasted all year. More than $2 trillion in market value evaporated by year-end.

It all then culminated in the collapse of a major cryptocurrency and a leading crypto exchange.

So a lot of this was reflected in Congress’ crypto trading habits last year.

While as many as eight members of the House and Senate dipped their toes into cryptocurrencies in 2021, we had only three last year: House Republicans Madison Cawthorn and Ted Cruz, and House Democrat Marie Newman.

Out of those three, only Ted Cruz made it back to Congress in 2023. A filing indicates that he bought between $15,001 and $50,000 worth of Bitcoin.

Now, a crypto winter in a traditional financial market sense is similar to a bear market. And it’s only natural for people (even Congress members) to sit on the sidelines when confidence is low or when markets are choppy. That’s precisely what happened last year.

To be clear – despite the 2023 rally – with Bitcoin down 56% from its 2021 all-time highs, we’re still in a crypto bear market right now.

But that’s not necessarily a bad thing. And it certainly doesn’t mean it’s time to give up on Bitcoin, despite what the naysayers think.

But if you’re looking to dip a toe in crypto, this isn’t the time to dive headfirst. And with so much uncertainty in the space regarding future regulation, I’d probably stay away from alternative coins, or “altcoins.” I would just stick with Bitcoin… if you are involved in the crypto market at all.

That’s because, during crypto bear markets, altcoins decline by more than Bitcoin. They have a greater risk profile.

That’s also why I recommend putting only a small, speculative amount of your investment portfolio into Bitcoin. Plus, never invest more money than you can afford to lose.

And that’s all for this week’s mailbag. Thanks to everyone who wrote in!

If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.

I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.

And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [email protected].

Happy investing… and have a fantastic weekend!



Nomi Prins
Editor, Inside Wall Street with Nomi Prins