Why New Gold Fund OUNZ Isn’t A Gimmick

May 19, 2014

The latest physical gold ETF might very well shake up the space anchored by 'GLD.'

The long-awaited Merk Gold Trust ETF (OUNZ) finally launched last week. The trust, which owns physical gold bars much like the SPDR Gold Trust (GLD | A-100), includes a groundbreaking feature—it allows even small investors to redeem their shares for gold.

No doubt, physical gold ETFs, like GLD and the iShares Gold Trust (IAU | A-100), have already been on the market for nearly a decade now, and like OUNZ, they also hold physical gold bars in some of the world's most secure bank vaults.

But those bars can only be claimed by an authorized participant, and only by redeeming whole creation units—in GLD's case, a block of 100,000 shares worth about $12.5 million at current prices. Here's where OUNZ stands out: It allows any investor to make a redemption, even in amounts as small as 1 troy ounce.

That redemption isn't free. Merk charges a fee to pull gold out of the fund in exchange for shares, and this fee varies depending on what kind of bar or coin you want. The transaction would be subject to either a minimum fee or a fee per ounce (whichever is bigger), as laid out by the fee schedule below:

Fee Per
Ounce
Minimum
Fee
1oz. American Gold Eagle $60 $2,500
1 oz. American Buffalo $60 $2,500
1 oz. Australian Kangaroo $40 $1,600
1 oz. Canadian Maple $42 $1,600
1 oz. Australian Bar $30 $1,200
10 oz. Australian Bar $25 $1,000
London Good Delivery Bar $32 $0

For example, if you were to redeem a single ounce of American Eagles, you'd pay $2,500 to do so. Some quick arithmetic shows you'd have to take delivery of about 40 ounces of gold at once, currently worth slightly more than $50,000, to avoid the minimum fee. That's not out of reach for an individual investor, but it's hardly chump change. Taking delivery of a single 1 ounce coin—or even several—is not advisable.

So, is OUNZ's redemption feature just a novelty?

 

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