Upcoming Merk Gold Trust (OUNZ), backed by phys incl. redemtion?


Yellow Jacket
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It seems there will soon be a new gold ETF in town, claiming to be backed by physical and allowing redemtion of small amount. I've heard in an interview I can't find right now that the launch is in January 2013:
Axel Merk Files To Market Gold ETF
By Olly Ludwig | April 23, 2012
Related ETFs: IAU / GLD

Axel Merk, who filed last month for permission to market an ETF version of his Merk Hard Currency Fund, now plans to add a physical gold ETF to his firm’s planned footprint in the exchange-traded fund industry.

The Merk Gold Trust, which will trade on the New York Stock Exchange’s electronic trading platform Arca, under the symbol “OUNZ,” will hold London “good delivery bars” as well as other gold bars and coins with a minimum purity of 995 parts per 1,000, according to the regulatory filing.

The decision to bring a gold ETF to market appears related to the plans for the Merk Hard Currency ETF to the extent that Merk Investments indicated in the filing last month that the currency ETF’s possible investments in gold were likely to be implemented through exchange-traded products, including ETPs sponsored by Merk itself.

Apart from Merk Investments' internal objective of possibly using its own ETFs to obtain gold exposure for the Merk Hard Currency ETF, the yellow metal remains near and dear to many investors worried that economic uncertainty and loose-money policies of many central banks in the world since the market meltdown in September 2008 are debasing the dollar and other currencies, such as the euro.

Gold prices have risen by more than 4 percent this year, and are at around $1,600 a troy ounce.

They reached a high in September 2011 of around $1,900 an ounce. Private investment demand was almost a third of total annual gold demand at the end of 2009—up from 12.9 percent in 2000, the filing said.

ETFs are a big part of that growth. SPDR Gold Shares (NYSEArca: GLD), the physical bullion ETF sponsored by State Street Global Advisors, remains the second-biggest exchange-traded fund in the world, with assets of nearly $68 billion, according to data compiled by IndexUniverse.

GLD is up more than 255 percent since it was launched in November 2004, according to data on Google Finance.

The filing said that J.P. Morgan will serve as custodian of the trust, while Bank of New York Mellon will serve as trustee. :doodoo:

Merk Investments didn’t say how much its gold ETF will cost.

SSgA’s GLD has an annual expense ratio of 0.40 percent, compared with 0.25 percent for the $9.51 billion iShares Gold Trust (NYSEArca: IAU).

Apparently one can redeem shares for phys, even small amounts:
Those who invest in the Merk Gold Trust that Merk Investments put into registration last month will be able to redeem smaller amounts of shares of the proposed ETF for actual bullion—a marketing hook that sets it apart from existing physical gold ETFs and could put to rest reservations with gold ETFs that can’t readily be redeemed into actual gold.

“Investors who would like to take delivery of Gold Bars in exchange for their Shares (Delivery Applicants) may submit Shares to the Trust in exchange for Gold Bars,” the proposed ETF’s prospectus said—a new twist that may add to the allure of gold at a time when many believe it’s the only true store of value since the financial crisis of 2008-2009.

While it’s not at all clear that investors would even take advantage of this convertibility feature, it seems a fair bet that giving shareholders the option to turn their paper certificates into physical gold pretty much obviates objections raised by some of the more fervent gold holders who believe that gold—as in actual bars or coins—is really what investors should own.

More to the point, the plan might take off the table suspicions some gold investors have with physical gold ETFs that don’t allow for shares to easily be converted into actual gold. The most ardent gold bugs are quick to suggest that because current ETFs can’t be converted into bullion, it might be possible that they don’t actually hold gold. ETF sponsors are dismissive of such suspicions.

In the any case, it appears the Merk gold ETF will attempt to distinguish itself insofar as the amounts that can be redeemed can be as small as tiny bars of gold and even coins, whereas industry sources say existing gold ETFs require amounts equal to 100,000.

That 100,000-share threshold amounts to a sum equal at current prices to about $15.4 million for investors in State Street's SPDR Gold Shares (GLD - News). In other words, it's outside the capability of individual investors and requires the involinvement of authorized participants, the big players at the center of every ETF's creation and redemption mechanism.

The Merk gold ETF, which will be listed on Arca, the New York Stock Exchange’s electronic trading platform, will come with an annual expense ratio of 0.40 percent, according to the fund’s prospectus , dated April 20. That’s the same annual fee as GLD's, the $67.35 billion physical bullion fund, which is the second-biggest ETF in the world.

The Merk Gold Trust, which will trade under the symbol “OUNZ,” will hold London “good delivery bars” as well as other gold bars and coins with a minimum purity of 995 parts per 1,000, according to the filing. The ETF’s net asset value will be determined at the end of the London trading day, meaning its price in New York could at times deviate from the end-of-day NAV.

The costs of redeeming OUNZ shares will go up the lesser the amount being redeemed, and any such redemptions won't be taxable events.

But reselling any shares converted into bullion will be taxable -- just one issue that would dog anyone who does redeem OUNZ shares for real gold.
Indeed, where that gold will be stored and the value lost in all the transactions costs are likely to be exorbitant.



Yellow Jacket
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Wow, great find SA!

It will be very interesting to see if Merk gets this ETF off the ground OK. Imagine that! A gold ETF that actually will let you convert paper... to gold! :clap:

While Axel Merk is a name I have seen around in my reading about gold, I think I will will just stick to owning the physical, right close at hand.


Your Host
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Looks like launching new gold ETFs is becoming a fashionable endeavor. Caveat emptor.


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And if not a coin, at least go with Sprott (from what I know at least).
Why? You still pay a premium and gradually the cost of running the fund will eat away at the value of the silver you buy. The costs are small, but if you are holding it for an extended period, why not just have it in hand? The metal ETFs make since as trading vehicles, not investments.