Bargain spotted in gold closed-end funds

If you have to own gold, Central Fund of Canada (CEF +0.6%) is the way to go, writes Morningstar's Mike Taggart, who notes it's trading at an 8.3% discount to NAV - more than two standard deviations outside the norm. As CEF holds just gold and silver bullion (55/45 mix), the big discount suggests a great deal of bearish investor sentiment is priced in.

"There is no fundamental reason for the share price to have fallen significantly faster than its NAV," writes Taggart, and the fund gets a Bronze Morningstar rating - meaning it's expected to outperform all other funds in the commodity precious metals category over the next five years.

Central GoldTrust (GTU -0.6%) also makes the undervalued list.


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Comments (6)
  • solarcircle
    , contributor
    Comments (320) | Send Message
    CEF has the actual bullion, unencumbered so I would much rather invest there, in the real thing, than in paper promises.
    24 Sep 2013, 03:57 PM Reply Like
  • jmarkar
    , contributor
    Comments (23) | Send Message
    What about PHYS? isn't that similar?
    24 Sep 2013, 04:18 PM Reply Like
  • 6151621
    , contributor
    Comments (1172) | Send Message
    PHYS is a gold trust (and PSLV is the Sprott Silver Trust) but above indicate CEF is 1) heavily discounted and 2) both gold and silver.
    24 Sep 2013, 06:22 PM Reply Like
  • RS055
    , contributor
    Comments (5369) | Send Message
    I believe with PHYS , you can actually get physical gold by tendering your shares - whereas CEF/GTU have no such mechanism. Therefore CEF/GTU have no real way to close the discount other than by selling some of their physical and buying back shares with the proceeds - which is unlikely. Therefore the discount can persist.
    Still, the discount is large enough now to make these attractive. And it seems safer to me to own these totally passive entities that do nothing more than store the gold in a segregated account . The ETFs and even PHYS have bullion continuosly leaving and entering - which could pose some risks in a chaotic environment.
    26 Sep 2013, 04:11 PM Reply Like
  • 6151621
    , contributor
    Comments (1172) | Send Message
    Sprott claimed in a interview a couple weeks ago that only 1 redemption / delivery had taken place in PHYS (= 1x 400oz bar) and that it was only to test that one could get the physical.
    26 Sep 2013, 10:10 PM Reply Like
  • tsajames
    , contributor
    Comments (38) | Send Message
    Good article. However, I can't understand for the life of me, why most gold and silver recommended stocks are doing so bad. Then I realized, if you look at gold and silver during the hours the stock market is closed; they are doing just fine. Again, central and bullion banks are trying to recoup their illegal leased out physical gold debacle. Take a look at gold or silver right now or for that matter; look at how their Ponzi scheme has been working for weeks. Gold and silver are up after hours and right before the market is open during regular business hours, these stocks tank. I am sorry for going on or off somewhat this subject however good recommendation. Nevertheless, I have been tracking nearly every stock pertinent to this article and nearly all are a good buy right now if not for the fact they are buys when the U.S. Stock Market is closed.
    24 Sep 2013, 07:25 PM Reply Like
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