Is VanEck Merk Gold Trust (OUNZ) the Right Safe-Haven Investment for You?

Introduction

Recent Performance and Market Dynamics

Performance Metrics

As of July 29, 2024, OUNZ closed at $23.02, reflecting a slight decrease of $0.03 (-0.13%) at market close. Despite this minor dip, the ETF has demonstrated robust performance with a year-to-date (YTD) return of 15.33% and a one-year return of 21.41%. The fund’s net assets total approximately $961.9 million, and it has an expense ratio of 0.25%.

Trading Volume and Volatility

The average trading volume for OUNZ stands at 1,074,175 shares, with a recent total volume of 1,186,367 shares traded. The ETF’s beta of 0.14 over the past five years indicates lower volatility compared to the broader market, making it an attractive option for risk-averse investors.

Market Dynamics

Gold prices have reached record highs in 2024, driven by strong investment demand and significant purchases by central banks in emerging markets like China, India, and Turkey. The current price of gold is $2,394.95 per ounce, reflecting a +19.15% increase compared to one year ago. This surge in gold prices has positively impacted OUNZ, as the ETF’s value is directly tied to the price of gold.

Unique Features of OUNZ

Physical Gold Redemption

One of the standout features of OUNZ is the option for investors to redeem their shares for physical gold. This unique benefit sets OUNZ apart from other gold ETFs, providing investors with the flexibility to convert their investment into tangible assets. The delivery process employs a proprietary method developed by Merk Investments LLC, allowing for the conversion of London Bars into smaller denominations of gold coins and bars.

Tax Efficiency

Taking delivery of gold through OUNZ does not constitute a taxable event, as investors are merely taking possession of what they already own. This tax efficiency can be a significant advantage for investors looking to minimize their tax liabilities.

Portfolio Diversification

Gold is recognized as a valuable asset for portfolio diversification, serving as a store of value and a hedge against systemic financial and geopolitical risks. OUNZ’s structure allows investors to gain direct exposure to gold prices while also having the option for physical delivery, enhancing its appeal as a diversification tool.

Comparative Analysis

OUNZ vs. SPDR Gold MiniShares Trust (GLDM)

A comparison between OUNZ and GLDM reveals several key details:

• Performance: Both ETFs have shown similar performance metrics, with OUNZ having a YTD return of 15.58% and a one-year return of 23.04%, while GLDM has a YTD return of 15.69% and a one-year return of 23.19%.
• Expense Ratios: OUNZ has an expense ratio of 0.25%, slightly higher than GLDM’s 0.18%.
• Volatility: Both ETFs exhibit similar volatility, with OUNZ having a daily standard deviation of 13.78% and GLDM at 13.80%.

Overall, while GLDM slightly outperforms OUNZ in most categories, OUNZ’s unique feature of physical gold redemption provides an added benefit that may appeal to certain investors.

Strategic Considerations for Investors

Safe-Haven Asset

Gold has historically been viewed as a safe-haven asset, particularly during periods of economic uncertainty and geopolitical tensions. The ongoing impacts of the Russia-Ukraine war and concerns about potential US debt default have further enhanced gold’s appeal. As a result, OUNZ, with its direct exposure to gold prices, stands out as a reliable investment option for those seeking stability.

Inflation Hedge

With inflationary pressures expected to persist, gold’s role as an inflation hedge becomes increasingly important. The anticipated rate cuts by the Federal Reserve are likely to boost gold’s appeal further, potentially driving prices to new highs. J.P. Morgan forecasts that gold prices may rise to an average of $2,500 per ounce by the end of 2024, indicating a favorable environment for gold investments, including OUNZ.

Long-Term Outlook

The long-term outlook for gold remains positive, with some forecasts suggesting prices could reach up to $3,000 per ounce over the next five years. This optimistic projection is supported by strong investment demand, central bank purchases, and ongoing economic uncertainties. For investors with a long-term horizon, OUNZ offers a compelling opportunity to capitalize on these trends.

Risks and Considerations

Market Volatility

While OUNZ exhibits lower volatility compared to the broader market, it is still subject to fluctuations in gold prices. Investors should be aware of the potential for price declines and market volatility, which could impact the value of their investment.

Lack of Income Generation

OUNZ does not generate income, as it is solely focused on providing exposure to gold prices. Investors seeking income-generating assets may need to consider other options or balance their portfolio with income-producing investments.

Market Price vs. NAV

The market price of OUNZ shares can vary from the net asset value (NAV) due to market fluctuations. Investors should monitor these variations and consider the potential impact on their investment decisions.

Conclusion

The VanEck Merk Gold Trust (OUNZ) offers a unique and cost-efficient way to invest in gold, with the added benefit of physical delivery. Its strong performance, low volatility, and tax efficiency make it an attractive option for investors seeking exposure to gold. As a safe-haven asset and inflation hedge, OUNZ stands out in the current economic environment, with gold prices expected to continue rising. However, investors should be mindful of the inherent risks, including market volatility and the lack of income generation. Overall, OUNZ provides a compelling opportunity for those looking to diversify their portfolios and capitalize on the positive outlook for gold.