Royal Mint has terminated its eight-year physical delivery agreement with WisdomTree on the Gold Bullion Securities (GBS) one year after launching its own gold ETC on the European market.
The move means investors in GBS can no longer exchange their shares for gold bullion coins or bars issued by The Royal Mint.
Having been introduced almost eight years ago, the agreement allowed GBS investors to convert their equity into physical gold.
However, last Thursday, WisdomTree announced the agreement was ended, effective 18 February.
The GBS ETC is listed on the London Stock Exchange, Euronext Paris, Borsa Italiana, and the Deutsche Boerse, with assets under management (AUM) of $4.2bn.
The Royal Mint’s decision to terminate the agreement will mean that several of the advantages of convenient conversion to physical gold will be removed – and may ultimately reduce the product’s appeal to retail investors.
Likewise, while exchanging shares for physical gold is still possible, redemption can only be performed via a London Bullion Market Association (LBMA) channel and into an unallocated account, which incurs some credit risk for the LBMA member.
Also, redemptions can no longer be done in the form of gold coins, which was previously an appealing feature for private retail investors.
Commenting on the news, The Royal Mint said: “Last year, The Royal Mint introduced a gold ETC which provides customers with the option to physically redeem their gold. This is a unique feature of the product, and as a result, we have decided to end our partnership with WisdomTree.”
The $348.6m Royal Mint Physical Gold Securities ETC (RMAU) is listed on the London Stock Exchange, Borsa Italiana, and Deutsche Boerse, and is only gold ETC to offer physical redemption from The Royal Mint.
RMAU is a collaboration with white-label issuer HANetf and allows users to exchange shares for Britannias, Sovereigns and bars, with the gold being held in the Royal Mint vault in Wales – outside of the London financial system.
Hector McNeil, co-CEO at HANetf, commented: “The ability of RMAU to allow end investors to redeem for physical is a major USP for the product.
“Once the Royal Mint entered the gold ETP market, as the only Sovereign Mint provider of a gold ETC in Europe, it made sense for them to be the sole provider of the physical redemption facility to provide a seamless process from ownership of the ETC to conversion to bars and coins that can be delivered virtually anywhere in the world.”
Though WisdomTree can no longer offer redemption of physical gold from the Royal Mint, the WisdomTree Core Physical Gold ETC (WGLD) and WisdomTree Physical Swiss Gold ETC (SGBS) products can deliver gold to banks and financial institutions in Germany, the UK and Switzerland, in quantities exceeding one ounce.