NAV (Net Asset Value)

Net Asset Value (NAV) is the value of an entity's assets minus the value of its liabilities. It is most commonly used in reference to mutual funds or exchange traded funds (ETFs) and calculated on a per-share basis. ETFs calculate the NAV at 4 p.m. EST, after the markets have closed.

A fund’s NAV fluctuates along with the value of its underlying assets, such as gold in the case of gold ETFs. Assume that there are 1,000 shares of a gold ETF, which holds 100 ounces of gold. If the price of gold is $1,000 per ounce, the per-share NAV amounts to $100 ($1,000 * 100 ounces / 1,000 shares). If the price of gold jumps to $1,100 per ounce (and the fund holds only gold bullion), its NAV will move to $110 (let’s notice that the NAV will move by the same percentage as the price of gold, i.e. 10 percent). ETFs calculate the NAV at 4 p.m. EST, after the markets have closed, for accounting purposes (the NAV is also used to compare the performance of different funds).

GLD ETF's NAV

Since ETF shares are traded like stocks, their prices fluctuate in a trading day due to supply and demand, and there may be differences between the market closing price for the ETF and the NAV (the case of open-end funds is different, because shares in such funds are not traded between investors, hence open-end funds issue and redeem shares at prices calculated in reference to the NAV). Thus, if many investors want to buy an ETF, its share price might rise above its NAV (and vice versa). However, any deviations should be relatively minor due to the redemption mechanism used by the ETF’s authorized participants. Indeed, as the chart below shows, the GLD shares are trading at NAV most of the time.

Chart 1: The price of GLD (green line) and the SPDR Gold Trust’ Net Asset Value (red line) for the last twelve months.

The price of GLD and the SPDR Gold Trust’ Net Asset Value

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