Editor’s Note: The following is an open letter to Elon Musk, prompted by Tesla’s recent 10-K filing which noted that, in addition to holding Bitcoin, the company “… may invest a portion of such cash in certain alternative reserve assets including… gold bullion, gold exchange-traded funds and other assets as specified in the future.”
We want this urgent warning to reach him. Below is a letter crafted to illustrate what could happen if Tesla buys paper gold through a bullion ETF rather than taking delivery of physical metal.
To: Elon Musk, CEO of Tesla Corporation
From: Bullion ETF Manager
Subject: Fund NAV Falls Below Gold Price
Dear Mr. Musk,
We regret to inform you that, because of counterparty failures within our bullion ETF structure, the fund’s NAV (Net Asset Value) no longer matches the spot price of gold.
We discovered that some gold held by our sub-custodians fails to meet the Trust Agreement’s standards. As a result, the Trust has recorded a loss that affects the NAV of every share. If you sell shares of the ETF now, you will likely receive a price below the prevailing spot price for physical gold.
Under these circumstances we were forced to invoke a prospectus clause that permits temporary suspension of metal deliveries. While we regret having to take this step, we did so to protect the integrity of the fund. The prospectus also limits shareholders’ legal remedies against the Trust, including in the event of bankruptcy, which may or may not return your full investment and could take years to resolve.
We apologize for the inconvenience.
– John D. WallStreet
Hypothetical ETF Manager
P.S. Why didn’t you just buy real gold?
Elon, this letter is not hyperbole…
Bullion ETFs disclose language describing these risks and the exceptions they may exercise. When you buy a gold ETF you don’t own specific bars of gold; you own shares in a trust. That structure introduces several counterparty risks that don’t exist when you hold physical bullion.
It would be troubling to see the NAV of a fund you own diverge from the market price of gold — and that has happened. During the market crash in March 2020, some funds did not track their NAVs properly and traded at prices inconsistent with the underlying assets. While that particular situation was eventually resolved, it highlights the vulnerability of paper representations compared with real, allocated metal.
We urge you to consider physical bullion for two primary reasons: reduced counterparty exposure and true possession. The rest of this letter explains the key counterparty risks inherent to bullion ETFs.
Counterparty Risk
Counterparty risk is straightforward: you depend on other parties to honor commitments tied to your investment. If they fail, your assets are at risk. Even a bank account depends on the bank’s ability to honor withdrawals and interest payments.
Every bullion-backed ETF carries counterparty risk. When you buy shares in a gold fund, you expose yourself to several interdependent elements, often more than investors realize:
- Fund structure
- Chain of custody
- Management competence
- Operational controls
- Delivery and redemption agreements
- Regulatory oversight
If any of those factors break down, your investment could suffer—redemptions may be delayed or suspended. In the event of a systemic monetary shock, it is entirely possible that one or more of these risks will materialize for bullion ETFs.
Below are three specific counterparty risks to be aware of when deciding how to hold gold.
Risk #1: Who’s on First?
The prospectus for the largest bullion ETF, GLD (SPDR Gold Trust), contains provisions that transfer significant risk away from the fund and onto investors. Examples disclosed in fine print include the possibility that if gold bars are lost, damaged, stolen or destroyed, responsible parties may lack sufficient resources to satisfy the Trust’s claim. If the Custodian becomes insolvent, identifying allocated bars may be delayed and recovery uncertain. Additionally, the trust’s custody operations may not be subject to specific governmental regulatory supervision.
These terms mean the fund is structured to protect itself first and investors second. If a custody failure occurs, the ETF may not track the gold price and could impose restrictions on redemptions.
Complicating matters, GLD and similar funds use subcustodians to store allocated bars. Prospectus statements show that under some legal frameworks the Trustee or Custodian may have limited contract claims against subcustodians, and they may lack rights to visit storage facilities or review records. Subcustodians can appoint further subcustodians, and oversight of this chain is limited.
In short: the custody chain can be long, opaque, and weakly documented. A single breakdown—say, a subcustodian suddenly unable to produce bars—could trigger a cascade of problems, potentially freezing the fund and leaving investors unable to redeem. Ironically, while the gold price would likely surge on such news, the ETF’s share price could collapse.
Risk #2: Paperwork Failures and Administrative Errors
Operational and managerial failures are another real danger. For example, BlackRock’s IAU (iShares Gold Trust) disclosed that in 2016 it sold unregistered shares due to administrative oversight. That error meant the fund issued shares that were not properly registered with regulators, causing a period during which the fund’s share count and legal status were in question. Until resolved, the fund did not reliably track the price of gold.
That incident revealed how administrative mistakes or inadequate internal controls can leave investors exposed, especially during spikes in demand. All ETFs depend on managerial competence; poor execution can magnify risk during market stress.
Risk #3: Storing Gold on the Bank Balance Sheet
Many bullion ETFs store their metal at large custodial banks. For example, HSBC has been a custodian for some funds. However, large banks can carry legal and operational baggage—past fines, regulatory actions, and compliance failures—that raise questions about their reliability in a crisis.
Because many ETFs rely on banks for storage, they tie the safety of a “safe-haven” asset to the banking system they are meant to hedge against. In an economic or monetary crisis, banking-system vulnerabilities, emergency regulations, or operational failures affecting custodial banks could put ETF holders at risk.
The Primary Reason to Own PHYSICAL Gold
Elon, you likely do not want to discover that your bullion ETF cannot deliver metal, that proceeds are delayed, or that the fund’s holdings are less secure than advertised—especially at a time when price and possession matter most.
The chief practical benefit of holding physical gold is liquidity you control. Properly allocated, insured, audited, and independently stored metal offers possession outside the banking system and direct access in times of stress.
Owning physical gold reduces counterparty exposure: whether you hold coins, bars, or professionally allocated storage, the asset you possess has minimal reliance on third parties honoring complex contractual arrangements.
Is Your Gold Investment a Safe Haven?
Bullion ETFs can be convenient, but they carry real and sometimes hidden risks. If your objective is protection from financial and economic uncertainty, paper proxies that introduce counterparty exposures can undermine that goal. Physical gold, while not without its own considerations, remains a tangible asset with very low counterparty risk.
Holding actual metal provides crisis resilience: in extreme scenarios, physical possession is often the most reliable form of liquidity.
Be the forward-thinking leader you are and consider taking delivery of real gold rather than relying solely on paper representations. Your shareholders—and your future self—may benefit.
And Lock in Your Silver Now!
Elon, Tesla’s products require significant amounts of silver. Securing supply now can protect against abrupt price spikes. To illustrate, if Tesla reaches its stated goal of 20 million EVs by 2030, and if each vehicle uses up to 50 grams of silver, annual silver requirements could be on the order of tens of millions of ounces. Rising silver prices would materially increase production costs for vehicles and other products that rely on silver.
Securing critical industrial metals now helps manage input-cost risk and supply-chain exposure as demand grows.
Sincerely,
– Jeff Clark and the GoldSilver team
(Follow Jeff on Twitter @TheGoldAdvisor)