How To Get 2% Discount On Gold And Silver, 11% On Miners And 11% Dividend

Summary

• 2.1% discount on physical gold and silver.
• 10.82% discount on mining stocks.
• 11.03% dividend from option strategies.

This series of articles does not aim at predicting where precious metal prices will go, but at showing investors where they can get more value for their money.

Since my last update one month ago, gold is close to the same price after a failed attempt to break out above $1300.

Gold price weekly chart at Finviz

In 2017, gold was most of the time between $1200 and $1300, two levels that have played many times as support, resistance and magnet since 2013. We’ll see what happens in the historically good season for precious metals: November to February.

The short interest of commercial hedgers is high but not extreme, giving little clue on gold insiders' sentiment. The situation is similar for silver and platinum. It is different for palladium, touching a 17-year high for the second time in a few weeks, with a short interest of commercial hedgers approaching a multi-year extreme value.

Palladium monthly chart (finviz.com)

I don’t know if it is a good time to buy precious metals as an investment, but there is no bad time to accumulate small amounts as an insurance. For this purpose, some closed-end funds are an alternative to GLD, SLV, PPLT and PALL. The next table shows the discounts for some Canadian funds on 10/31/2017.

	Tickers	+Premium -Discount	Expense ratio
Central Fund of Canada	NYSEARCA:CEF	-2.1%	0.32%
Sprott Physical Gold Trust	PHYS	-0.66%	0.35%
Sprott Physical Silver Trust	PSLV	-0.75%	0.45%
Sprott Physical Platinum & Palladium Trust	SPPP	-1.68%	1.17%

Click to enlarge

Premiums and discounts are calculated with the price of latest LBMA fixing (12:00 p.m. for silver, 3:00 p.m. for gold).

CEF will be bought by Sprott and assets should be transferred to a new Sprott fund under a new ticker at some point in the 1^st quarter of 2018 (see here for more details on the transaction). This is the end of the famous premium/discount of CEF. The new fund is expected to have a much thinner divergence of market value relative to NAV. It is also expected to have a slightly higher expense ratio of 0.40%.

This is good news for some long-term shareholders who want to unlock the value trapped in the discount since 2012. It is bad news for traders who liked CEF as an instrument to play the gold market sentiment, and for investors who liked accumulating in dips, sometimes at a 2-digit discount.

Investors preferring stocks and incomes may consider GAMCO Funds GGN and GNT. Their holdings are mostly precious metal mining companies and dividends are much higher than in GDX. GGN has also positions in energy: Exxon Mobil (XOM), Schlumberger (SLB), Royal Dutch Shell (RDS.A) (RDS.B). Besides miners, GNT has holdings in oil (Exxon Mobil), materials (Monsanto (MON)), industrials (Deere (DE)). ASA is another closed-end fund in precious metal companies.

	Tickers	+Premium -Discount	Dividend Yield	Expense ratio
Global Gold Natural Resources & Income Trust	GGN	+0.93%	11.03%	1.26%
Natural Resources Gold & Income Trust	GNT	+0.86%	8.58%	1.37%
ASA Gold&Precious Metals	ASA	-10.82%	0.35%	1.26%

Click to enlarge

ASA has the best discount. GGN has the best dividend yield, but its market value is a bit above its net asset value, and the yield is based on option strategies: it may be put at risk, like for GNT. These closed-end funds have no additional risk due to leveraging: GGN has a low leveraging ratio (close to 1.1), GNT and ASA are not leveraged. High dividend CEFs like GGN and GNT may suffer capital decay due to ROC (return on capital). However, ROC may be a good thing for investors with a lower tax rate on dividends than on capital gains (Seeking Alpha has readers all over the world and tax laws vary).

The top holdings of ASA are Randgold Resources (GOLD), Barrick Gold Corp (ABX), Newcrest Mining Ltd, Agnico Eagle Mines Ltd (AEM), Newmont Mining Corp. (NEM), Goldcorp Inc. (GG), Royal Gold (RGLD), Franco-Nevada Corp. (FNV), AngloGold Ashanti (AU), Cia de Minas Buenaventura (BVN). This group represents about 60% of the net asset value. ASA allows to hold shares of these companies and other ones with an 11% discount. Discount in closed-end funds is a normal state, but we can expect it to shrink in ASA if a rally happens in miners, unlocking additional value.

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Comments

[Jan Blanckaert]

Fred,
are you planning to do an update of this article ? Would be interesting now that gold and silver have seen some upward trend . I see that the discount on ASA is still substantial . What is the best way to invest in Platinum ?

[Jan Blanckaert]

Thanks,
Been a long term holder of CEF. Plan to sell After acquisities of Sprott o just before when premium is close to zero. I do not want to pay the higher expense on Sprott.
May put part of the proceed into ASA .
Suggest to look for alternatives for Cef apart from Sprott for your overview.

[Fred Piard]

Thanks for reading Jan. Personally I hold shares of Zuercher Kantonal Bank metal funds, but I think US persons are not allowed to buy them.

[Jan Blanckaert]

That ok for me. Living in Belgium. Investing with a company in the Netherlands. What is the ticker and what is the expense ratio.. I assume no discount?

[Fred Piard]

Tickers on SWIX for all metals in CHF: ZGLD, ZSIL, ZPLA, ZPAL. You have variants in USD, EUR, GBP and also hedged against the currencies. Just don't take the hedged versions if you want plain metal. You should find more info on zkb.ch. I think ER is also 0.40% for gold. Not cheaper than Sprott, but gold is stored in Switzerland.
http://bit.ly/2yoRZif
http://bit.ly/2z7Djkw

[Mark0f0]

The 1.26% MER is burned up in what, 6-7 years by that discount?

[Fred Piard]

I guess you are pointing to ASA expense ratio. It must be compared with a similar product and your calculation should take the difference. GDX is at 0.52%. I have no position in any of these funds. Last time I have bought GGN it was at a 2-digit discount, I sold it a few months later after the price went up and the discount had shrunk, unlocking additional value. I don't see closed end funds as buy-and-hold instruments.

[Franklin123]

This seems oddly promotional under the circumstances of current expectations for the precious metals. I am fairly confident that "the market" would not be offering for sale at a discount any item that it expects to rise in price in a relevant time frame. An expectation that gold will rise materially in the foreseeable future, and not decline, is an arrogant posture that ignores the probabilities presented by the markets.

[Fred Piard]

Franklin, I don't know about your "current expectations for the precious metals", but if you have read somewhere that "gold will rise materially in the foreseeable future", it is not in this article.

[User 37220206]

Fred, thank you for this article, But can you be a bit more specific on the title of your piece: "How To Get 2% Discount On Gold And Silver, 11% On Miners And 11% Dividend"

[MountainMan1776]

Seems obvious where the title came from if you read the piece ...
- 2% discount on gold / silver with CEF
- 11% discount on miners with ASA
- 11% dividend with GGN

[arihalli]

User 372 had tongue-in-cheek?