Two leaders in hard assets investing, Van Eck Global and Merk Investments, have separately filed registrations to issue new "redeemable" gold trusts in ETF format. (Van Eck also has filed for a similar redeemable silver trust.) These ETFs would fill a gap that currently exists in the precious metals space – between physical ownership and the existing gold/silver ETFs.
See also: ETF assets reach record $191 billion
In the giant $62 billion SPDR Gold Shares ETF, for example, creation and redemption units are 100,000 shares, and the creation/redemption process is limited to a handful of institutional authorized participants. The only way other GLD investors can liquidate is to receive the current value of their shares in cash.
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This fact has created one of the longest running conspiracy threads on the Internet, as many gold advocates argue that GLD (and other precious metals ETFs) may lack enough unencumbered bullion in the vault to meet all redemption claims during a "physical metal squeeze."
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The redeemable trusts proposed by Van Eck and Merk are aimed squarely at the growing number of investors who give some credence to this theory, yet want to own gold through the convenience of ETFs. The trusts would allow any shareholder to redeem shares for bullion delivered in designated quantities. Critics have argued that the complexities of shipping metal from ETFs vaults may make the cost of physical redemption prohibitively high, relative to buying bullion or coins locally. However, this remains to be seen, and in any case these trusts would:
- Expand choices for owning precious metals; and
- Potentially increase investor demand for precious metals.
The redemption of shares for metal would not be a taxable event, as is the sale of ETF shares. For a recent analysis of the redeemable trusts by IndexUniverse, see: www.indexuniverse.com/sections/features/16353-redeemable-gold-etfs-could-be-costly.html
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