I am trying to understand how precious metal ETFs actually collect their fees. I know that for a stock ETF, expenses are collected by charging the shareholder's brokerage account a cash amount on a periodic basis. This does not seem to be the case for precious metal ETFs. It appears that a very tiny fractional share is sold on the shareholder's behalf on a monthly basis. Tax documents mark this transaction in 2 places:

  1. As a "Gross proceeds investment expense" in the "Fees and Expenses" section
  2. As a "Principal payment" in the "Proceeds from Broker and Barter Exchange Transactions" section

I have a few questions:

  1. Why doesn't a precious metal ETF just charge the shareholder's brokerage account directly instead of selling their shares?
  2. If #1 is not odd enough, why does the shareholder have to pay tax on the "gross proceeds" from an "investment expense" via "principal payment"? This sounds like having to pay taxes on an electric bill.
  3. Can these transactions/expenses be lumped into a single transaction when filing taxes, or do they have to go into separate transactions, one for every month the ETF is held?

1 Answer 1


YMMV, but none of my stock ETFs have ever collected any fees from my account.

Instead, they collect their fees from the cash part of the ETF, if it has any. Otherwise, it would sell some of their holdings (which it does anyway from time to time for rebalancing purposes).

Another opportunity to get cash is the creation/redeption process: As new ETF shares are created, an Authorized Participant hands in a basket of securities and cash, and this cash may also be used for this process.

A metal ETF would do the same: either it isn't 100% invested in its holdings, but has a bit of cash, then it is taken from this. Otherwise, some of its holdings are liquidated. That means that the amount of metal per one ETF share decreases over time.

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