I last wrote about the Canadian Central GoldTrust fund (GTU) in late February, when it had just come off a near 2 year premium streak. At the time, gold was down 12% from its high in October. Since then, both gold and GTU have been pounded by recent sell-offs, losing an additional 12% and 15%, respectively.
That last number should catch your eye.
GTU is a gold bullion fund, just like SPDR's Gold Shares (GLD) and iShares Gold Trust (IAU). The difference is GTU is a Closed-End Fund (CEF), a structure that must retain a fixed number of shares. It's this limited supply that occasionally offers up a very rare opportunity.
GTU, as of March 31, held 704,652 fine ounces of gold bullion, the exact same amount it held on December 31st last year. When interest in gold is high, investors piling into GTU must purchase from current shareholdings willing to sell. When demand exceeds supply, GTU's price goes up. Since GTU really does hold 704,652 fine ounces of gold bullion (plus some cash assets), it's very easy to relate its published Net Asset Value to its price. High demand = gold priced at a premium. When demand falls low enough that there literally aren't enough buyers to match the sellers, GTU is stuck with 704,652 fine ounces of bullion, and trades at a discount. Since gold isn't exactly perishable, you can imagine this commodity discount pricing doesn't happen often. In fact, nowhere in GTU's 5 year history has it traded at such a discount:
For most CEFs, it's not totally abnormal to trade at a difference to NAV. Of the 599 total CEFs on the market today, 499 are at a discount. What makes GTU so special in my opinion is that it is a purely gold bullion fund. Unlike all the corporate equity or debt notes, the covered calls, the MLPs, there isn't a clearer connection between a fund's market price and its NAV than when dealing with an elemental commodity.
GTU offers strong competition to its larger ETF rivals. The fund's administrative fees are 0.1% less than GLD, albeit only 0.05% higher than IAU. Though not redeemable without a letter from the Trust, GTU's physical assets are dispersed amongst the underground treasury vaults of the Canadian Imperial Bank of Commerce.
Keep in mind CEFs offer no guarantee they'll actually return to or ever follow their NAV. Even when bought at an "abnormal discount," investors are still at the mercy of the market to determine when and if GTU normalizes its price gap. Nonetheless, as Tim Iacono shows, discount gold pricing can drive people wild.
As of this article, GTU is currently trailing its NAV by 2.65%. While I won't attempt to make any grand speculations as to the price of gold in 2013, I will say you won't find a single exchange that'll sell you $100 of gold for $97.35. If you're looking to enter the gold market in this recent plunge, keep a close eye on GTU's discount.