Insights

Understanding Swap Lines

In recent weeks the subject of SWAP Line countries has come to the forefront of many financial websites, specifically those focused on gold investing.

The concept is relatively new and may be confusing to some, so we feel it is crucial that investors in this space understand what it means.

As defined by Investopedia, Swap Networks (also known as Currency SWAP Lines), are credit facilities established between central banks. Their importance stems from their use as a tool to reduce and manage financial risks, because they allow central banks to increase liquidity in both international and domestic banking sectors.

Countries where U.S. Federal Reserve SWAP Lines currently exist include the Bank of Canada, Bank of England, the European Central Bank and a handful of others.

There are number of countries that do not have SWAP Lines with the U.S.

Governments in these countries have the potential to increase taxes, royalties or even ownership of a mine.

So how might this relate to your investment in the U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU)? The simple answer is it doesn’t.

SWAP Line countries are not a factor in determining the holdings in GOAU. In fact, 80 percent of GOAU’s holdings are in North America (the U.S. and Canada), with the remainder in Australia, the U.K. and South Africa.

The companies located in these jurisdictions are both liquid and tradable.

Still unsure of SWAP Line countries and their impact on your investments? Feel free to give us a call to discuss further (312-961-8918) or email info@usfunds.com.