Gold And Silver Discounts In Canadian Funds

 |  Includes: CEF, GLD, GTU, PHYS, PSLV
by: Fred Piard

The gold and silver charts look ugly and there is no technical sign of reversal. The fundamental picture is not clear: even famous gold bugs confessed that inflation can stay low longer than they thought. Production prices are a moving reference: when metal prices were going up, more money was spent in production and development with a perspective of even higher prices. Real production prices might be lower than current evaluations. Another concern comes from the concentration of future contracts by a few major players, on the long side in gold, and on the short side in silver. Do precious metals fulfill the conditions of a free market? Does a technical and fundamental analysis really matter? Unfortunately, I have more questions than answers to offer.

So, is there still a reason to buy? In the permanent portfolio model by Harry Browne, precious metals are one of the four major asset classes and should represent up to 25% of an investor's wealth. My opinion is that this model forgets real estate as a major asset class, and as a consequence the percentage should be lower. But more than an asset class, the essence of gold is to be an insurance against major historical turmoil, and let's name things by their names: wars, revolutions and dictatorships. When you really need an insurance, price is not so important. An insurance is not something to make money. It is exactly the opposite: you buy it with the hope to never need the money back.

Here eventually comes the point of my article. Depending on the political and geopolitical risks in the place where you live, on your personal financial situation, on your current holdings, you might consider buying more gold, or starting to build a position step by step. If you make such a decision, you have to know where you can find the best value for your money. The next table shows discounts, premiums, and real metal allocated for four famous Canadian funds on 12/6/13.

Data 12/6/13

NYSE on Close

(Dollar US)

Central Fund of Canada

Central Gold Trust

Sprott Physical Gold Trust

Sprott Physical Silver Trust

NYSE Ticker





TSX Ticker















+Premium/ -Discount





Metal Bullion /NAV*


gold; 57.7% silver: 41.4%









Click to enlarge

*complement is in metal certificates and cash assets.

For long-term buyers, CEF and GTU discounts provide a 6 to 7% safety margin in case metal prices fall lower. Some smart readers may have seen an opportunity of arbitrage, for example buying GTU and shorting GLD. It is a low-risk trade, but don't expect a quick profit. Discounts in CEF and GTU have moved in a random manner between 4 and 8% last two years. If you don't want to miss future updates on discounts and premiums, click "Follow" in my Seeking Alpha profile.

Disclosure: I am long CEF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.