How to Arbitrage GLD

Understand the GLD peg mechanism and arbitrage opportunities that help maintain price stability around ≈1 gram of gold.

The Peg Mechanism

GLD maintains a ≈1 gram gold peg through market forces and arbitrage. Since PAXG = 1 troy ounce (31.1035 grams), the theoretical ratio is:

1 PAXG ≈ 31.1035 GLD

When GLD trades above or below this ratio on Uniswap, arbitrage opportunities emerge that naturally restore the peg.

Arbitrage Scenarios

GLD Trading Above Peg

When 1 PAXG buys less than 31.1 GLD on Uniswap:

  1. 1. Buy PAXG from external markets
  2. 2. Swap PAXG → GLD on Uniswap (receive fewer GLD)
  3. 3. Sell GLD at premium elsewhere
  4. 4. Profit from the price difference

This selling pressure pushes GLD price down toward peg

GLD Trading Below Peg

When 1 PAXG buys more than 31.1 GLD on Uniswap:

  1. 1. Buy GLD at discount on Uniswap
  2. 2. Swap GLD → PAXG (receive more PAXG)
  3. 3. Sell PAXG on external markets
  4. 4. Profit from the price difference

This buying pressure pushes GLD price up toward peg

Key Factors for Arbitrageurs

Liquidity Depth

50% of supply (5M GLD) locked in Uniswap V3 pool provides deep liquidity for large trades.

Fee Structure

1% Uniswap V3 fee tier. Factor this into profit calculations along with gas costs.

Speed Matters

Arbitrage windows close quickly. Use MEV protection and optimal gas settings.

Gold Price

Monitor spot gold prices. PAXG tracks LBMA gold, affecting the GLD:PAXG ratio.

Risk Warnings

  • • Arbitrage profits are not guaranteed and depend on market conditions
  • • Gas fees on Ethereum can be high during network congestion
  • • Slippage on large trades can erode profit margins
  • • MEV bots may front-run your transactions
  • • Smart contract risk exists despite audits
  • • Regulatory considerations apply to trading activities