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VanEck launches a gold ETF: Is it worth it?

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The new fund will provide access to investment in Australia-sourced gold and is targeted at investors seeking long-term capital growth.

Just as the price of gold finally gains momentum this year, fans of the yellow metal are getting a fresh investment option with the launch of the VanEck Gold Bullion ETF (ASX: NUGG) on the ASX on Wednesday.

NUGG will be physically backed by gold bullion sourced only from Australian gold producers. Investors get the added incentive of being able to convert their exchange-traded fund (ETF) holdings into physical gold.

"Investors are increasingly looking for transparency for their precious metals purchases. The gold bullion that physically backs NUGG is held in a vault at The Perth Mint. A list of the allocated gold bars that make up the fund's assets will be made available on our website daily," said Arian Neiron, managing director for VanEck's Asia Pacific operations.

The ETF's launch comes when investors are facing heightened financial and political uncertainty.

"History has shown, when confidence erodes, or when there is extreme volatility in markets, investors turn to gold," Neiron said.

The NUGG launch is VanEck's 32nd ETF listed on ASX and has been designed with Australian investors in mind.

Why invest in a gold ETF?

Gold has been considered a store of value for thousands of years, but the last few decades have increased its standing as a financial asset. Investing in gold is considered a valuable hedge against inflation and a safe way to diversify a portfolio given its stability during periods of market volatility.

The price of the safe-haven asset spiked close to its all-time peak in March this year following Russia's invasion of Ukraine, before dropping, but has again rebounded in recent weeks to trade at US$1,770 an ounce.

Gold-based ETFs are a great alternative to investing in physical gold because they allow small investors to profit from the gold price while being more cost-effective.

Most gold ETFs track the price movements of either the commodity itself or an index tracking multiple companies with gold exposure or in stocks of gold mining and exploration companies.

One of the world's most actively traded ETFs is VanEck's Gold Miners ETF (NYSEARCA: GDX) which was first launched in 2006.

How does NUGG stack up?

The VanEck Gold Bullion ETF will provide investors access to Australia-sourced gold. It's targeted at investors seeking long-term capital growth and who are comfortable with short- and medium-term fluctuations.

In addition to liquidity on the ASX, NUGG gives investors the option of converting their holdings into physical gold from The Perth Mint.

The NUGG ETF has an annual management fee of 0.39%, which VanEck said makes it the most cost‐effective gold ETF on the ASX.

The fund has assets under management worth $2.6 million with a net asset value of $26.32 per unit.

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