Ron Paul's Dream ETF: Gold and No Taxes

Photographer: Kiyoshi Ota/Bloomberg

One-kilogram gold bars. Close

One-kilogram gold bars.

Close
Open
Photographer: Kiyoshi Ota/Bloomberg

One-kilogram gold bars.

The new Merk Gold Trust (OUNZ) is the first gold exchange-traded fund to let investors take physical delivery of gold when they sell their shares. That’s right: Someone will deliver gold bars and coins to your door.

This ETF appeals to investors who want to know they can get their hands on gold at any time -- say, in a market panic. For paranoid types, it offers an extra level of assurance that the gold is actually there in the vault. Investors who opt to take delivery of the gold fill out an application, which their broker submits to the fund's trustee bank. Once that's done, the gold arrives, in most cases, UPS next-day delivery. Aside from the London bars in the vault, investors can choose from this lustrous menu:

• 1-oz. American Gold Eagle coins

• 1-oz. American Gold Buffalo coins

• 1-oz. Australian Gold Kangaroo coins

• 1-oz. Canadian Gold Maple Leaf coins

• 1-oz. or 10-oz. Australian bars

There are fees. While delivery is covered for anyone in the continental U.S., there's an “exchange fee” that runs about 2 percent to 7 percent, depending on the transaction size and the type of gold. Merk has a calculator to help investors to determine the fee. There are many fee variations based on the size and type of gold you want. To redeem 2,500 shares, or $32,250, in 1-oz. Australian bars, the exchange fee is $1,200.

Investors won’t incur tax, because no money is exchanged. They are merely taking possession of what they already own. When they sell SPDR Gold Shares (GLD) or iShares Gold Trust (IAU), the transactions are taxed as “collectibles” at 28 percent, regardless of the holding period. That can come as a shock, and compares with the 20 percent taxation of gains on stock and bond ETFs held longer than a year.

If OUNZ's reception is anything like that of ETFS Gold Trust (SGOL), assets could flow in quickly. SGOL has over $1 billion in assets simply because it stores the gold in Switzerland instead of London or New York. (Gold bugs like Switzerland's long history as a safe haven for capital.) OUNZ charges 0.40 percent of assets under management. That's the same as GLD but higher than IAU, which charges 0.25 percent.

Once you get your gold delivered, what do you do next? You could get your own vault or take out insurance. Or, as OUNZ’s issuer, Axel Merk, president of Merk Investments LLC, said in a recent interview with Investment News, “Some people might just buy the gold, store it at home and then buy a gun.”


More stories from Eric Balchunas:

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Eric Balchunas is an exchange-traded-fund analyst at Bloomberg. More ETF data is available here, and weekly ETF podcasts can be found here.

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