Van Eck looks to enter the world of physical gold and silver ETFs, with redemption enticements.
Van Eck, the New York fund sponsor behind the Market Vectors ETFs, filed regulatory paperwork detailing plans to bring to market two precious metals physically backed funds that would allow investors to redeem their shares for gold or silver—an innovation Axel Merk proposed last year in a gold fund he registered.
The Market Vectors Redeemable Gold Trust is designed to reflect the performance of the price of gold minus expenses—its assets will consist of gold bullion. Similarly, the Market Vectors Redeemable Silver Trust reflects the movements in the silver market through a portfolio comprising silver bullion, the two separate filings said.
Both funds aim to provide investors an opportunity to invest in gold and/or silver through the trusts while being able to take delivery of gold bullion or silver bullion in exchange for their shares, the filings said.
Indeed, shares will be issued in exchange for gold or silver bars from registered broker-dealers or other market participants, and investors can redeem their shares for the actual metals. It seems both funds would allow investors of any size to exchange their shares for gold or silver, albeit with some specification requirements.
It’s not entirely clear that such redemptions, as well as the ones contemplated in Axel Merk’s Merk Gold Trust, would be any better in terms of value than obtaining gold from, say, a dealer who travels in physical gold or silver in the form of coins or various kinds of ingots. Van Eck doesn’t exactly disclose how the redemption mechanism for these products will work and what the specifications are.
But it does seem that it would be easier for investors trying to redeem for actual bullion in these funds than in a fund such as the SPDR Gold Shares (NYSEArca: GLD), which industry sources say requires redemption amounts of at least 100,000 shares. At current prices, that’d be a redemption worth more than $15 million, meaning it would be off limits to most individual investors.
The number of shares to be delivered “must correspond in value to the fine ounce content of the gold bars requested and have a minimum dollar value in an amount that is specified by the Sponsor from time to time,” the filing detailing the gold trust says. Similar language can be found in the prospectus for the silver trust.
Aside from that, neither filing provides key details on the delivery process other than to warn investors that taking delivery of gold or silver for their shares “may take time,” and bars might not be available in the “requested sizes” at the time an investor requests to take delivery, something that could result in a delay, the filings said.
It is unclear who the custodian of the precious metals will be and where the metals will be stored, or even how big these trusts intend to get or how much they will charge, among other details. Van Eck will provide more clarity in future filings.
“Although the shares are not the exact equivalent of an investment in gold, they provide investors with an alternative that allows a level of participation in the gold market through the securities market,” Van Eck said in the filing for the gold trust.