The Fidelity Momentum Factor ETF (FDMO) is a U.S.-stock-based exchange-traded fund (ETF) that tracks...
OUNZ: Gold Fund with a Twist
06/18/2014 10:00 am EST
Here we talk with Axel Merk of Merk Investments to learn about a newly-launched gold fund, with the unusual benefit of allowing investors to take physical delivery of the gold represented by their shares in the fund.
Steven Halpern: Joining us today is Axel Merk of Merck Investments. How are you doing, today?
Axel Merk: Very well, thank you.
Steven Halpern: Merk Investments is well known for its innovative ETFs, particularly in the currency area. Could you give our listeners a brief overview of the Merk currency funds?
Axel Merk: Yes, our main goal with our currency funds is allow investors to get true diversification, either through baskets of currencies, managed baskets of currencies, or through more tactical strategies.
We have a currency war strategy, if one believes; one can be a step ahead of policy makers, designing a portfolio that we believe is going to equip investors to stay a step ahead if we get tailwinds in the stock markets for example.
Steven Halpern: Now you have also recently launched a new ETF—called the Merk Gold Trust—with the symbol, (OUNZ), or ounce. Before we look at the specifics of the fund and some of the elements that make it unique within the marketplace, I would like to ask first your overall outlook for the gold market.
Axel Merk: We like gold because there is too much debt in the world. We do not think we can afford positive real interest rates in the US, in Japan, or the Euro Zone over the medium to long-term, which means that there is going to be an incentive for central banks to keep interest rates low.
And even as they rise normally on a real basis—meaning after inflation—interest rates will continue to be low for an extended period and that is an environment that should be rather favorable for gold.
Steven Halpern: Now turning to the new Merk Gold Trust, this fund allows investors to take physical delivery of the gold that is represented by their shares. Could you explain a little about how that works?
Axel Merk: Yes, first of all with OUNZ, investors can buy gold on the New York Stock Exchange as if they can buy gold through other commonly available exchange trader products and it tracks the price of gold.
You can buy it, you can sell it, and there is liquidity during the US market hours, but the key differentiator is that investors, as you point out, can take physical delivery of their gold.
Investors can take delivery of the London bars that we hold in London, or at the time that investors request delivery, they may exchange the gold for coins and bars.
The reason we do that is because we believe, ultimately, if an investor, when they decide that they want to hold the gold in their hand, they might prefer a one ounce coin over the London bars that are very well suited for institutional trading, but of less interest to the individual investor.
Steven Halpern: As you mentioned, the physical gold is actually held in London. Could you explain the decision for having chosen that?
Axel Merk: Yes, when we see the price of gold quoted, it is relative to London gold and the reason is that the center of institutional gold trading takes place in London.|pagebreak|
London—over time—has established itself as the most consistent place and as such that when you trade gold in any other place, you tend to have wider spreads, you pay a premium or discount depending on whether you buy or sell, and if you want to have an exchange traded product that tracks the price of gold rather closely, London is a very suitable place to hold gold.
I was in London last week to personally inspect, for example, the vault, and see the gold that is held by the Merk Gold Trust in person.
Steven Halpern: Now, interestingly you note that taking delivery of gold is not a taxable event in this fund—but is the case with selling other gold ETFs. Could you explain that to our listeners?
Axel Merk: Yes, when an investor holds OUNZ, they own a pro rata ownership of the underlying assets of the Merk Gold Trust, which is gold. When investors take possession of the gold, it is not a taxable event.
And the reason that this is of interest to investors, potentially, is that if somebody decides that they are very comfortable buying gold as an exchange traded product, but a couple of years down the road, if the price of gold has appreciated, they change their mind and they like to have physical gold at home, well, with other gold products, you generally have to sell the gold ETF, then have a taxable event and then buy the coins, if that is what the investor wants to have.
With OUNZ, as the price appreciates, all investors can simply take delivery of the gold and that in itself does not trigger a taxable event.
Steven Halpern: InvestmentNews calls the new fund the “gold bug's dream ETF.” Could you provide a brief overview of the types of investors that would best benefit from buying this fund?
Axel Merk: Well, we think, “Why wouldn't you buy this fund, given the choices that are out there?” We believe we add more value than some others do and, given that the Merk Gold Trust is trading in the market with a very tight spread, we think it offers everything that other gold trusts might be offering and then some.
Now, generally speaking, the type of investor, obviously, that likes to have a trust like this, first of all, you may want to like gold in your portfolio, and secondly, you may want to like this feature that you are able to take delivery.
We don't think that everybody is now going to buy the physical gold on the exchange and have it delivered, but we do believe that investors appreciate having that option.
One of them is that, if they change their mind or also—the reason why InvestmentNews referred to it as the “gold bug's dream ETF,” is that this allows investors—who at some point are concerned that gold might not be held by the vault—that they can at that time take delivery of the gold to get the assurance that the gold is, indeed, there.
As I indicated, I visited the gold vault. We have periodic audits of the vault and through that, we do provide all the mechanisms that allow investors to buy and sell OUNZ through an exchange-traded product, but again, if they want to choose to take the physical delivery, we allow that as well.
Steven Halpern: It is a fascinating new product and we really appreciate you taking the time to share highlights with our listeners. Thank you.
Axel Merk: My pleasure.
Related Articles on ETFs
With apologies to The Doors, I just have to say it: The dollar has been down so long ... but the tre...
In his latest Weekly ETF Report, fund expert Jim Woods reviews an exchange-traded fund that investor...
The U.S. dollar has jumped compared to other currencies around the world in recent weeks and may tem...