Gold Funds | Behind Bars: How Diversified is the Custody of Gold ETCs | RMAU

06 April 2020


What is a physical gold ETC and how can gold be diversified?

  • Gold is a well-known portfolio diversification tool and seen as a ‘safe haven’
  • Owning gold is one thing – storing gold is quite another
  • Who provides custody, and where they hold gold is an underlooked risk
  • Current Gold ETC market looks competitive with 20+ products, but most gold is held at a duopoly of 2 banks – HSBC & JP Morgan
  • True diversification is at the Custodian level not the product provider level 


Gold has been an investor favourite since time immemorial. Whether held as jewellery, coins or ingots, people have always wanted to own gold but have been faced with the challenge of what to do with it once they’ve got it - you have to keep it out of the hands of criminals and safe from disasters. 

Smaller investors may turn to a home safe, but this is unlikely to deter serious criminals as Australian billionaire Kerry Packer discovered in 1995 when a robber broke into his office and stole 285kg of gold from a safe disguised as a drink’s cabinet. Unbelievably, the criminal responsible was never caught.

Others may turn to safe deposit companies, impressed by their glossy brochures and sales pitches that extol the virtues of their high-end security systems, but even these are not infallible. In London in 2015, six men drilled into the underground vaults of The Hatton Garden Safe Deposit Company in a heist described as the “largest burglary in English legal history”. Similarly, in 2003, a gang of robbers in the Netherlands stole an estimated $100 million of gold, diamonds and jewellery in the so-called “Antwerp Diamond Heist”.

And of course, in 1963, Latvian master criminal Auric Goldfinger attempted to rob the US gold depository at Fort Knox, only to be foiled at the last minute by the efforts of British secret agent, James Bond.

As CoronaVirus fears have roiled global markets, investors have flooded to physical gold ETCs (Exchange Traded Commodities) as a way to invest in the traditional safe haven of gold - a record 3,033 [1] tonnes of gold are now owned via ETCs by both institutions and individual investors.

Gold ETCs were invented in 2003 by a team which included HANetf co-CEO Nik Bienkowski. Gold ETCs combine the liquidity and tradability of a share with the attractive store-of-value and diversification characteristics of physical gold. In a physically backed gold ETC, the gold is held on behalf of the investor in the vaults of a custodian bank.

In London, the centre of the global gold markets and custody, there are just seven companies [2] that offer gold vaulting services – HSBC, ICBC Standard Bank, JP Morgan, Brinks, Loomis, Malca-Amit Commodities and The Bank of England.

Before we go further, as far as we know, we should point out that there’s not been a successful robbery of any bank associated with gold ETCs – but that doesn’t mean that it couldn’t happen, or that some other disaster could befall an issuer or custodian. (The notorious Brinks-Mat robbery in 1983 pre-dated gold ETCs). It’s also not impossible that fraud, malfeasance or a criminal employee could result in the loss or theft of gold.

If the point of holding gold is to hedge against a worst-case scenario, then investors need to have a strategy that ensures their gold is stored in a way that is metaphorically and literally ‘nuclear-proof’.Perhaps proof of the potential for a crime is the fact that most custodian’s insurance doesn’t coverthe value of all the metal they custody just the amount the insurance company estimates someone can steal at one go.

Diversification is usually the best way to spread risk so it’s important to understand what true diversification means when it comes to gold custody.

The 2008-2009 financial crisis illustrated that there is no such thing as ‘Too Big to Fail’. Banks and financial institutions fail all the time, often with bad debts and high amounts of leverage. If companies like Bear Stearns, Lehman Bros and Merrill Lynch can collapse, then so could a Blackrock, WisdomTree, State Street or Invesco. Custody isn’t diversified across a group of companies.

What is Diversification?

For gold ETC investors, one approach to diversify counterparty risk is to buy gold ETCs from more than one issuer on the assumption that their gold may be stored in different locations – the eggs must be in different baskets - but does this really spread risk and provide the required diversification?

Focusing on issuer-level as the primary way to get diversification is the wrong approach. Gold is gold and it really matters very little who the issuer is as the vehicle to issue the ETC/ETFs are generally homogenous.

The vast majority of gold ETC issuers use SPVs and their role is really limited to just operations and marketing of the product. Additionally, most issuers are (part of) listed companies that are highly exposed to the ups and downs of global equity markets, creating an additional source of risk.

During the recent market sell off during the Coronavirus crisis, most listed asset management firms and banks have seen their share values fall by over half and subject to unparalleled price volatility. For gold ETCs, real diversification come down to where the gold is stored and held.

Let’s compare a selection of major gold ETCs available to investors:

Exchange Traded Commodity (ETC)

Ticker Tonnes of Gold Held Custodian Custody Location

SPDR Gold Shares





iShares Gold Trust



JP Morgan 


iShares Physical Gold ETC



JP Morgan


Invesco Physical Gold ETC



JP Morgan


WisdomTree Physical Gold





Gold Bullion Securities 





Xtrackers Physical Gold 



JP Morgan 


WisdomTree Physical Swiss Gold 



JP Morgan


Xtrackers Physical Gold ETC



JP Morgan


Amundi Physical Gold ETC









Source: Gold Holdings Data from World Gold Council, February 2020,

This table represents some of the major ETCs and accounts for 2,047 tonnes of the 3,033 [3] tonnes(just over 2/3rds) of gold held by all ETCs. What’s immediately noticeable is that an investor that decides to spread risk by purchasing a gold ETC from more than one provider may not be as diversified as they expected or wanted. It is highly likely that the custodian will be either HSBC or JP Morgan and it is almost inevitable that their gold will be stored somewhere in London. In fact, more than 2/3rds of all gold held in gold ETCs is stored in the vaults of just two institutions making gold ETC custody an effective duopoly. The failure of these institutions, or a serious attack on London, could be catastrophic for holders of these gold ETCs. However, it is important to say that both of these banks are two of the most secure institutions and are highly experienced precious metal custodians.

Investors seeking true diversification could consider a gold ETC in which the gold is custodied both outside of the commercial banking system and geographically remote from London which is arguably the location at most risk from an act of terrorism or war – is there anything that checks both of these boxes?

The ‘Sovereign’ Alternative:

The Royal Mint is Britain’s oldest company and tenth oldest in the World. Founded by Kind Alfred the Great in 886, the company has weathered the Norman invasion, the Black death, multiple civil wars,multiple world wars, Spanish flu and the great depression. The mint produces British currency as well as medals and collectable coins and is trusted by governments to produce and deliver coinage for over 60 other countries – over 5 billion coins a year.

While many banks have come and gone, The Royal Mint has an unparalleled history, and through UK Treasury ownership has a credit history and profile that is incomparable to any commercial organisation.

In February 2020, The Royal Mint made history with the launch of its first ever listed financial product– The Royal Mint Responsibly Sourced Physical Gold ETC (RMAU). Like many other gold ETCs, RMAU lets investors buy physical gold as easily as buying a regular share, but unlike almost every other gold ETC, RMAU custodies its gold away from the London banking system in purpose built vaults on the outskirts of Cardiff in Wales.

This facility is a Federal Standard 832 class vault and is one of the most secure in the world. RMAU is the only gold ETC which is able to store gold in these vaults, thereby providing real diversification gold for investors, both on the custodian level and also at the geographic level.


Beyond these important differences, RMAU also offers a number of additional features that many existing gold ETCs do not:

Lower cost per ETC: Most physical gold ETCs entitle the holder to 1/10th of a Troy ounce of gold but RMAU enables investors to buy as little as 1/100th of a Troy ounce. This makes it far easier for small investors to buy gold and fine tune their allocations.

Flexible Redemption and Delivery: RMAU lets investors take physical delivery (ownership) of gold as bars or, uniquely to RMAU, bullion coins. The Royal Mint will ship the bullion to an investors home,or any other location, or store the gold securely in the investor’s name. This is physical gold investing in its most tangible sense.

Responsible gold: The process of mining and refining gold is rife with ESG risks. Major trade associations like LBMA and World Gold Council have established guidelines for producers and refiners, but many gold ETCs don’t hold gold that meets these rigorous standards. In contrast, as a new ETC, RMAU has to date been able to secure 100% of its physical gold from the LBMA responsible sourcing program, meaning investors who want to build an ESG portfolio now have a viable gold solution.

RMAU provides a genuine alternative to the same old ETC providers and, more importantly offers real diversification at the custody level. For many investors in gold, safety is the number one priority and RMAU delivers physical security in a geographically separate location alongside other important differentiating features.

Priced competitively at 22bps, RMAU is available to trade on London Stock Exchange and XETRA and is supported by an extensive network of liquidity providers.

As with all ETFs, an investor’s capital is fully at risk and investors may not get back the amount originally invested.


For more on The Royal Mint Responsibly Sourced Physical Gold ETC information, please visit the RMAU fund page.

Article date: 09/04/2020

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