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Redeemable Merk Gold ETF Closer To Launch

Cinthia Murphy


The launch of the Merk Gold Trust could be near if the latest round of paperwork—a newly filed prospectus providing additional details about the fund, including costs—is any indication.

The gold trust first entered into the regulatory pipeline a year ago and is slated to trade on the NYSE Arca platform under the ticker "OUNZ." It will hold London gold bars and other gold bars and coins with a minimum purity of 995 parts per 1,000.

It's designed to allow investors to track the price of gold while being allowed to convert their shares for physical gold upon request. That convertibility is innovative to the extent that it will allow smaller retail investors in the trust to take delivery of physical gold in exchange for their shares.

Indeed, in the realm of precious metals trusts, the creation/redemption of ETF shares has been limited to authorized participants. The trades are often off limits to smaller retail investors because they are worth millions of dollars and require an AP designation. But Merk will put the redemption part of the equation within reach of retail investors for the first time.

By comparison, the SPDR Gold Shares (GLD)—the largest physical gold ETF on the market today, with more than $65 billion in assets—limits that redemption feature to lots of 100,000 shares or more. At $152 a share, that's a $15.2 million minimum.

To be sure, the Merk Gold Trust imposes some limits of its own:The redeem-for-gold feature is good for any investor as long as the number of shares correspond to at least 1 fine ounce of gold, and have a minimum dollar value the sponsor stipulates from time to time, the company said in the filing.

The Expensive Cost Of Redemption

While in theory the trust will open the gates for investors of all sizes to exchange their shares for actual gold, the costs associated with the transaction could prove to be another limiting factor to many.

The trust comes with an annual fee of 0.40 percent of net asset value a year, the filing said, and investors looking to take delivery of physical gold at any point will face not only processing fees, but could possibly see delivery fees as well.


Those processing fees comprise fees the fund sponsor charges and the cost involved in the transfer of the physical gold, the filing said.

The exchange fee is calculated as a percentage of the value of the gold being redeemed, which will range from 2.5 to 7 percent. Merk also set a minimum fee of up to $7,000 for each redemption process depending on the form of the gold, making the redemption of small amounts of gold rather cost prohibitive.

For instance, the standard London bar weighs 4oo troy ounces, or nearly 439 ounces, which would put the redemption cost for a single bar at over $17,000 at current gold prices.

The costs are detailed below, as described in the filing:

Type Of Gold


Minimum Charge

1 oz Coins (American Gold Eagle)



1 oz Coins (other)



1 oz Bars



10 oz Bars



London Bars



Investors in the "Lower 48" U.S. states won't face any delivery fees, and should also be exempt from any sales taxes on the gold, but wherever either of those two costs apply, it would be upon the investors to pay them.

"All fees are subject to change upon notice and the sponsor may waive or reduce applicable processing fees from time to time," the firm said in the filing, noting that it could deny that convertibility to any investor at any point.

The Mechanics Of Delivery

As the process is set up, any investor wanting to redeem shares for gold will first have to submit a delivery application and pay the processing fee. Once the fund sponsor approves the request, the investor has to then send the application to a broker, who submits it to the trustee. It's at that point that the physical gold is sourced and delivered.

"For physical gold other than London Bars, the sponsor will arrange for the gold held by the trust to be swapped into the requested form of physical gold," the filing said.

The trust is structured as a grantor trust for federal tax purposes, and it will be terminated if the SEC determines the trust is instead an investment company under the 1940 Act, or if the CFTC determines it's a commodity pool under the Commodity Exchange Act of 1936, Merk said in the filing.

J.P. Morgan Chase Bank is the trust's custodian, responsible for the keeping of the gold, while the Bank of New York Mellon will serve as trustee to the fund.


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