CORRECTED-UPDATE 1-U.S. gold ETF delivers first physical bullion coins; holdings grow

Wed Jul 23, 2014 5:25pm EDT

(In paragraph 8, corrects premium to 4.6 percent from 3.5 percent)

By Frank Tang

NEW YORK, July 23 (Reuters) - Merk Gold Trust, a bullion-backed exchange-traded fund which allows its shares to be redeemed for physical gold, said on Wednesday it has made its first delivery in dozens of U.S. gold coins to an investor.

The ETF, launched by Palo Alto, California-based Merk Funds in May to offer a liquid trading product with the benefits of physical gold bullion, has accumulated 40,000 ounces in two months even in a bearish gold market.

The fund, trading on the NYSE Arca platform with the ticker OUNZ, owns less than 1 percent of gold held by SPDR Gold Shares , the world's biggest gold ETF. However, many participants are warming to the idea that the product could bridge the gap between the physical and paper gold markets.

A record two-day $225 drop in gold prices in April 2013 has boosted interest in physical gold and silver coin and bars, even as institutional investors continued to sell gold ETFs on a lack of inflation and as the Federal Reserve is set to unwind its bond-buying stimulus.

Merk Funds, which offers currency mutual funds to hedge against any depreciation of the dollar caused by unsound U.S. monetary policies, said the individual investor submitted 5,406 shares of OUNZ and requested the delivery of 54 American Buffalo 24-carat gold coins last week. The gold coins was delivered on Tuesday, Merk said.

The company did not provide any further details.

The ETF can also deliver gold in 400-ounce London bars, American Eagle 18-carat gold coins, and other one-ounce coin and bars.

The company reduced processing fees in May, to a typical premium of about 4.6 percent for American Eagle coins, comparable to what dealers charge, Merk Funds President Axel Merk. Premiums drop as transaction volume grows, he added.

Merk said the ETF received a U.S. patent for its efficient commodity delivery process which can handle numerous requests by retail investors.

SPDR Gold Trust investors who wish to redeem their shares in gold can liaise with the ETF's authorized participants, making physical delivery requests by small retail investors very difficult, if not impossible. (Reporting by Frank Tang; Editing by Richard Chang)

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