Gold ETF investing has been stressful over the last few years, as gold prices have gone on a wild ride. Investing in gold across calendar 2013 meant a 28% decline, but this year gold ETF investors have outperformed with a nice 8% return vs. about 2% or so for the S&P 500 since Jan. 1.
But for many precious metal investors, short-term volatility is not the point. Investing in gold is about security to them, and the reassurance that your money is in a tangible asset that cannot go to zero the way junk bonds or momentum stocks can.
To cater to this kind of defensive mentality, a new gold ETF allows investors to swap their shares in the exchange traded fund for bars of physical gold if and when they cash out.
The Merk Gold Trust (NYSEARCA:OUNZ) will start trading Friday and is the first gold ETF of its kind that allows for conversion of shares into gold bullion.
“The most important differentiating factor of OUNZ compared to other products is that investors may request delivery of their gold,” Axel Merk, manager of Merk Funds told MarketWatch recently.
Some of the largest exchange-traded funds out there are physical gold trusts, including the SPDR Gold Shares Trust (NYSEARCA:GLD) with over$32 billion under management and the iShares Gold Trust (NYSEARCA:IAU) with $6.9 billion under management currently. But Merk Investments and its “deliverable gold ETF” is a new iteration with a gimmick that may catch on big time with goldbugs.
After all, while day traders and swing traders may take a position in gold, the biggest potential investor base remains the segment of the market that wants the certainty of physical gold amid uncertain times. This could either be because they expect a crash or because they expect inflation, but these gold investors are nearly universal in their desire to invest in something “real” instead of just paper securities.
Merk Funds is hardly a mainstream funds operator right now, but this physical gold ETF could be more than a novelty among the precious metals crowd. It will be interesting to see how it trades in the years ahead — and most importantly, how investors experience the redemption process when they cash out of this gold ETF.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.