It seeks to corner an often-neglected part of the investment market: goldbugs who like to hold on to tangible gold.
You see, Merk Funds, the firm behind OUNZ, hopes this new gold ETF will appeal to investors who wish for the opportunity to turn in their exchange-traded fund (ETF) shares for the delivery of actual physical gold bullion, like bars and coins.
OUNZ isn't the first ETF to offer such an option. For instance, SPDR Gold Trust (NYSE Arca: GLD), the world's largest gold-backed ETF, also has a shares-for-gold exchange option.
But Merk has found interesting ways to differentiate OUNZ from the crowd.
Here's how this new gold ETF works - and how its differences might make it precisely the investment you're looking for...
Everything You Want to Know About the New Gold ETF OUNZ
Merk Gold Trust ETV is an exchange-traded fund with shares invested in gold bullion. The shares of this fund are designed to track the price of physical gold bullion, less the expenses needed for Merk Gold Trust to run operations. But that's not the main objective, according to Merk Investments President and Chief Investment Officer Axel Merk.
"For OUNZ, tracking the price of gold is a secondary objective. Our first priority is to allow investors to invest in physical gold through an ETF with the option to take delivery. But that doesn't mean we don't take the secondary objective seriously," Merk wrote in an article he authored about his new gold ETF.
"The most important differentiating factor of OUNZ compared to other products is that investors may request delivery of their gold," Merk reiterated in a phone interview with MarketWatch.
Here's how it actually works: Merk Gold Trust has possession of gold bullion in a vault in London. Investors can purchase pro-rata shares of this gold. When it comes time to exchange the OUNZ shares, investors have the option of receiving actual gold.
OUNZ's delivered gold will be in the form of London bars. Investors may also have the gold exchanged into other currencies, such as:
- American Gold Eagle Coins (1 oz)
- American Gold Buffalo Coins (1 oz)
- Australian bars (1 oz or 10 oz)
- Australian Gold Kangaroo Coins (1 oz)
- Canadian Gold Maple Leaf Coins (1 oz)
There is one interesting effect of this deliver option: This new gold ETF allows investors to dodge some tax consequences. You see, obtaining delivery of the gold is a non-taxable event - the investor is merely taking possession of the gold that they had purchased as shares from Merk Gold Trust. Compare this to other gold ETFs, where the sale of shares is viewed as a taxable event by the IRS. Barron's describes the taxable event as being just like that of art or coins - all are sales of a collectible and can trigger capital-gains taxes of as high as 28%.
Aside from tax treatment, another difference that sets this new gold ETF apart from other ETFs that also have gold delivery options is the amount of shares investors must own before they can exchange them. GLD, for example, requires investors to have a minimum of 100,000 shares in a lot referred to as a "basket" to be able to exchange the shares for physical gold.
"Because of the size of the baskets (100,000 shares for GLD), individual investors aren't likely to have a position big enough for a redemption," World Gold Council Managing Director Will Rhind said to MarketWatch. "The people who are creating baskets or redeeming shares are generally on the institutional level."
But Merk's new gold ETF only requires investors to have roughly 100 shares to exchange for gold, making a "deliverable gold ETF" option available to non-institutional, smaller-scale investors.
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