Central Fund of Canada: Going for Gold

Early on March 17^th, Max Hulbert reported that his Gold Newsletter Sentiment Index (which tracks leading gold advisories), had dipped into negative territory.

Three weeks earlier, this same index had shown gold analysts to be in a bullish mode by 61%, and now some 15 trading days later, these same analysts are 16.5 bearish, and advising their clients to be short gold for the time being.

For contrarians this is good news, and indicates that a buying opportunity in gold is likely on the horizon. As a rule, gold analysts are most bullish near a top and most bearish near a bottom. What say the charts?

Featured is the weekly gold chart. The blue arrows point to bottoms in the 7 – 8 week gold cycle. Three out of the last cycles lasted just 6 weeks. The latest cycle appears to have bottomed right on schedule, during week number eight. Confirmation that the bottom is ‘in’ will come once price closes above the green arrow. The overall trend is up, and the supporting indicators (RSI and MACD) are both positive. A closing price above the green arrow will start the next rally towards the resistance at 1,000.00.

Historically gold almost always puts in a bottom in mid March (THAT’S NOW).

Featured is the weekly silver chart. Price bottomed in October and rose by 75% to 14.75.

The Fibonacci target for the pullback has been met at the blue arrow. The supporting indicators are positive (green lines). As soon as price rises above the 50WMA (blue line), the next target is at the green arrow.

Historically silver almost always puts in a bottom in late February or early March.

So now that you are ready to buy into a gold or silver ETF, why not go for the best of the best? Central Fund of Canada (CEF) is not called an ETF, but it performs the same function. Founded in 1961, (long before the modern ETFs), CEF operates under the laws of the Province of Alberta Canada.

The founder is its current chairman, Mr. Philip M. Spicer. The company issues shares from time to time at prices that are non-dilutive to its existing owner’s net asset value per share, and it always buys additional gold and silver bullion prior to striking a price with the subscribers to its offerings. The company invests in gold and silver and its bullion holdings are always stored on an unencumbered, allocated, segregated and insured basis within a Canadian chartered bank’s treasury vault storage facilities. The physical gold and silver bullion is audited on a semi-annual basis in the presence of Ernst & Young LLP, the company’s auditors. This auditing factor puts Central Fund head and shoulders above the gold ETFs that have become so popular during the past few years.

The company’s shares qualify for inclusion in many North American regulated accounts.

Annual expenses are below 0.45% (low for this type of company). These expenses are taken from the company’s cash position. If the company does not have an adequate amount of cash on hand to meet its commitments, a small portion of its holdings may be sold to raise the cash required. The company has not sold any of its bullion holdings for several years and it has enough cash on hand to meet its current level of expenses for several years!

A minimum of 90% of Central’s assets are tied up in gold and silver at all times.

Central Fund never leases any of its gold and silver, and for those who worry about a repeat of the 1933 US government gold grab, the fact that this gold is outside of US jurisdiction puts that fear to flight.

Whereas several articles have been published that detail possible risk involved in the investing in GLD and SLV, no such risk exists with Central Fund.

The chairman recently issued this statement:

Our bullion is stored in separate compartments within the bank, with the name of the owner clearly indicated on the compartment, and on top of each pallet of bullion the name of the owner is indicated. This prevents the bank from using the asset for any unauthorized purpose. We also pay Lloyds of London for coverage of any possible loss.

Daily volume in CEF ranges between 500,000 and 1 million shares. For CEF/A.TO the average is between 100,000 and 200,000 shares per day.

Central Fund updates its financial situation on a daily basis at its website. As of March 16^th, these assets consisted of 1,049,328 ounces of gold (56.9% of total), and 52,460,793 ounces of silver (40.4%). The balance is ties up in cash and other assets. Current market cap is 1.9 billion dollars US – 2.4 billion dollars CDN.

The activities of Central Fund are controlled by a board of directors consisting of people who are knowledgeable in the precious metals field, and all of whom are current shareholders.

To the best of my knowledge CEF qualifies for 401K and CEF/A.TO for RSP investment purposes (but check with your accountant to make sure).

Featured below is the CEF daily chart. Price is rising within a well defined channel. Volume been dropping during the latest pull-back (red and green arrows), a positive sign.

The supporting indicators are at support levels (green lines). A breakout at the blue arrow will start the next bullish rally.

For additional information, contact the company.

Comments

[yellowhoard:]

Anyway you look at it, gold is setting up to move A LOT very soon. In two weeks we'll either be at new highs or testing 52 week lows.

Long gold, silver, platinum, palladium, corn, wheat, soybeans, sugar, and pretty much anything that is currently in very short supply.

Mar 18 09:15 AM

[MikeyLV:]

Beware that CEF has tax consequences if not in a retirement account. I only hold it in my IRA.

Mar 18 10:09 AM

[Doc 224899:]

The annual pattern for gold bullion prices has a slump in March, then it generally spikes at the end of March or the first few days of April.

The six to eight week cycle Peter De Graff refers to is in synch with that historical pattern, if a one month surge begins with a spike that starts around the last few days of March.

De Graff's last chart in this article, showing a breakout for CEF right around the end of March, could be comfortably projected right on top of the first chart in the article that refers to the 6 to 8 week cycle, especially with respect to a currently funnelling price channel over the past 4 months.

There are a bunch of gold miner stocks that all show the same price channel pattern ending at the end of March or first few days of April. If you don't believe me, go look.

Interestingly, Yellowhoard's predictions ARE in synch with the historical pattern with a spike around the first days of April, suggesting that he's seen (and refers to) the same annual gold price chart I have seen.

Mar 18 10:57 AM

[deuxsous:]

Peter,

There are two somewhat connected questions I have about CEF that I never see anyone discuss:

1. Why should a fund containing only gold and silver bullion trade at such a high premium to the metals holdings?

2. Why is it assumed that some future Canadian government might not seize private gold in a real pinch?

As I say, these questions may be connected in that the otherwise surprising CEF premium may come from very firm belief that private gold and silver could never be seized by the sovereign state. And yet we know that governments in Canada can and have "changed the rules" on various investments over the decades. The 2007 changes in tax treatments for Canadian exchange-traded energy trusts come to mind as an example.

Anyone other than Peter is welcome to address these questions.

Thanks in advance.

Mar 18 01:00 PM

[Jason Hamlin:]

It is wise to wait for a share offering before buying CEF or GTU. The premium comes down quite a bit and typically returns to its norm over the next week or so.

Here is a quick and easy way to calculate the premium for CEF:
www.silveranalysis.com.../

I agree with the author that this fund is far superior and less risky than either GLD or SLV.

Mar 18 03:06 PM

[AndrewBaker:]

However you buy your gold (or silver), buy it soon, as the price is about to take off. And sadly, the dollar is going south as gold turns north. We can't print our way out of this financial mess, yet we're trying to; so get hold of some real assets now whilst you can afford to.

Mar 18 03:35 PM

[optionsgirl:]

I just don't understanding the fear mongering about the government seizing gold from Americans. The government is now going after Swiss bank accounts, looking for tax dodgers.The Swiss government is happy to help, despite the Swiss banks resistance .
If the government ever wanted to go after US citizens that own CEF, don't you think the Canadian government would capitulate and that the funds representing those shares would be confiscated from your account, or they would find some other way to steal it?
Maybe that seems paranoid, but the govt is always changing the rules- so, if the government ever decides U.S. citizens can't hold gold, I believe they will prevail, irrespective of the gold investment-whether it be physical or paper, or where in the world it is housed.
Even the commodity exchanges can manipulate market price by changing the margin requirements. If you ever want to read the real story behind the Hunt Brothers, which mischaracterizes their attempt to own silver as "cornering the market on silver", you should read about how the margin requirements were changed to force them out of their positions. They didn't do anything illegal, and because of the spin on that story, they appear to have been thwarted robber barons rather than businessmen entitled to invest in silver, who were robbed. The Hunt brothers were afraid of fiat currency, and that was close to 30 years ago.
Never forget that when the banks were in their depth spirals, the government response was to suspend short selling.

Mar 18 04:05 PM

[deuxsous:]

optionsgirl,

Good points all, including the Hunt screwing by Paul Volcker and COMEX! Did you notice Paul Volcker sitting quietly by Obama's side at one of his "mouth-offs" this week? I got the message.

And notice that NO ONE will ever comment on CEF premiums or possible Canadian government policies. CEF has a golden protectorate of posters, bloggers, and sellers. It's a family business too.

Do you buy a REIT to live in? I don't think so. My advice is if you want to own gold, buy actual gold, not CEF or GLD or IAF or SLV.

Mar 18 11:31 PM

[optionsgirl:]

I agree with you, except if you are investing in it via a retirement vehicle, there are all kinds of issues dealing with storage ( you can't hold it yourself).


On Mar 18 11:31 PM deuxsous wrote:

> optionsgirl,
>
> Good points all, including the Hunt screwing by Paul Volcker and
> COMEX! Did you notice Paul Volcker sitting quietly by Obama's side
> at one of his "mouth-offs" this week? I got the message.
>
> And notice that NO ONE will ever comment on CEF premiums or possible
> Canadian government policies. CEF has a golden protectorate of posters,
> bloggers, and sellers. It's a family business too.
>
> Do you buy a REIT to live in? I don't think so. My advice is if you
> want to own gold, buy actual gold, not CEF or GLD or IAF or SLV.

Mar 19 11:29 AM

[deuxsous:]

OG,

There are perfectly US-legal ways to buy designated stored gold bullion inside an IRA. I can't speak for 401k's. Any seach internet engine can tell you where to look.

Mar 19 02:14 PM

[optionsgirl:]

I realize you can open an IRA and hold gold. However, you may not take physical possession of it, and you are paying insurance and storage fees, and sometimes, management fees, as well.
I don't know anyone personally that can invest in physical metals in their company sponsored 401K.


On Mar 19 02:14 PM deuxsous wrote:

> OG,
>
> There are perfectly US-legal ways to buy designated stored gold bullion
> inside an IRA. I can't speak for 401k's. Any seach internet engine
> can tell you where to look.

Mar 20 12:22 PM