Market uncertainty surrounding the Covid-19 pandemic certainly fueled an investor flight to gold as a safe-haven asset, but ETFs may have also had a hand in the movement. With the ability to offer investors exposure to the precious metal without actually holding gold itself, ETFs have allowed investors to get easy access along with the dynamic ability to trade gold.
“Some traders blame the increasing popularity of exchange-traded funds that afford both retail and institutional investors cheaper, easier access to commodities such as gold, silver, and other metals,” a Fox Business report noted. “They say that while ETFs such as the SPDR Gold Shares Trust marketed by State Street Global Advisors have been part of the market landscape for more than a decade, the surge in ETF buying of gold and silver stands to accentuate price swings, potentially intensifying the boom-bust cycle often seen in these and other commodities.”
“Because of the very high interest in ETFs by retail investors, you might see swings that you haven’t in the past,” said Ellen Hazen, a portfolio manager at F.L.Putnam Investment Management,
Getting Gold Exposure via ETFs
Exchange-traded fund (ETF) investors who want to get in on the gold action can look at the VanEck Merk Gold Trust (OUNZ). OUNZ seeks to provide investors with an opportunity to invest in gold through the shares and be able to take delivery of physical gold in exchange for those shares.
^BAUS data by YCharts
OUNZ offers investors:
- Deliverability: VanEck Merk Gold Trust holds gold bullion in the form of allocated London Bars. It differentiates itself by providing investors with the option to take physical delivery of gold bullion in exchange for their shares.
- Convertibility: For the purpose of facilitating delivery, Merk has developed a proprietary process for the conversion of London Bars into gold coins and bars in denominations investors may desire.
- Tax Efficiency: Taking delivery of gold is not a taxable event as investors merely take possession of what they already own: the gold.
As mentioned, one of the key benefits of OUNZ is the ability to exchange shares of the ETF for physical gold. Per the fund’s website, if you’re an “investor interested in taking delivery of physical gold in exchange for your OUNZ shares (Delivery Applicants), you must submit a signed Delivery Application to Merk Investments LLC (the “Sponsor”).
Amid more market uncertainty and an upcoming election, gold could continue to reign.
“Almost everybody is talking about gold…That is a warning signal in a way,” said Luca Paolini, chief strategist at Pictet Asset Management, which is holding more gold than its market benchmark but may sell some if volatility continues. “At least until the election in the U.S., this volatility will persist.”
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