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Without A Ceiling On The Fed's Balance Sheet, CEF Is A Buy

Mike Fay profile picture
Mike Fay


  • As the Fed's balance sheet grows, the precious metal will, ultimately, account for the debt monetization.
  • CEF has behaved more like silver that could be good if silver outperforms gold.
  • We could see a scenario where CEF permanently trades at a premium to NAV.

There are a variety of ways to play precious metals if, like me, you think gold and silver are going much higher. In previous articles, I've given some of my equity picks that give more of a leveraged play on gold and silver. Though I don't think there is anything better than buying the physical metal and storing it yourself if you truly want exposure, as we have seen in recent weeks, finding physical metal may prove challenging and expensive. Sprott Physical Gold and Silver Trust (NYSEARCA:CEF) is the next best thing, in my opinion.

In my coverage of IMPACT Silver Corp. (OTCPK:ISVLF), I took a look at the balance sheet of the Federal Reserve and made two related points that I felt illustrated why the prices of precious metals are very likely to move much higher. The first point centered largely on just how aggressively the Fed had increased the balance sheet in a short amount of time. The second point added the gold price as an overlay to show the relationship over the last two decades between the two. That article was written in March. Let's get an updated view of those points. Below are the top ten weekly expansions by percentage. March/April 2020 deliver three of the top ten and two of the top five weeks going back 18 years.

observation_date Assets (millions) Week/week Change
2008-10-01 $ 1,503,989 24.11%
2008-09-24 $ 1,211,825 21.78%
2020-03-25 $ 5,254,278 12.55%
2008-10-15 $ 1,770,809 11.26%
2020-04-01 $ 5,811,607 10.61%
2008-10-29 $ 1,969,086 9.24%
2009-03-18 $ 2,066,942 8.81%
2020-03-18 $ 4,668,212 8.26%
2008-09-17 $ 995,093 7.49%
2008-11-12 $ 2,212,852 6.68%

(Source: FRED)

The Federal Reserve Bank has now added $2.9 trillion to the balance sheet since August. That's a staggering amount. When we add the price of gold as an overlay, we

This article was written by

Mike Fay profile picture
5 years as a media research analyst. Main coverage areas are crypto, BTC miners, and media equities. Outside of Seeking Alpha, I write the Heretic Speculator newsletter where I share additional thoughts on finance with more of a social backdrop.

Analyst’s Disclosure: I am/we are 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.

I am not a professional. Do your own research or speak with someone how holds the proper paperwork when making investment decisions.

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Comments (15)

Eddie Gray profile picture
I guess this is kind of a question that I would love to get feedback on........Has the main reason CEF (and therefore any stock or etf like it) trailed the rise on gold is because of the implications of investing in it? First would be the tax consequences outside of an IRA and then maybe?,,,,second might be the misguided perception of foreign company ownership versus so many equivalent precious metal ETFs that are US-based? I ask this only because there was another smaller cap ETF I invested in a few years ago thinking it was a no brainer and I got frustrated after two years and exited out of it because it never seemed to rise with the market like expected do to low volume and interest.
I like CEF, used it off and on for my PM exposure. Quick question though, you state that CEF is acting more of a silver fund than gold and under performing gold funds. However, you then state that CEF is now trading at a premium to NAV rather than discount. Trading at a premium to NAV seems to imply that CEF is performing as it should given the assets it holds and not under performing. Is my logic wrong?
Mike Fay profile picture
That is a terrific point that didn't cross my mind. I'll dig on that in a couple days. It may have something to do with assets in the trust changing. For instance, if gold moves up, CEF shares stay flat, and metal is sold from the trust -> that would be a hypothetical scenario where premium to NAV goes up and the trust can still underperform the metal. I'll see what I can find out.
Mike Fay profile picture
So I checked it out. If you change the timeframe from my two decade view to just the last 2+ years, CEF performs far more like gold than silver. The weighting is very likely a large part of this as the annual report shows an increase in asset weighting to gold from silver from the 2018 report to the 2019 report. On NAV premium, I take the position that market participants are just going to become more willing to pay up for the trust as demand for physical makes acquiring the metal harder. If that continues, we should see the trust outperform for sure.
@Manhole Financial - thanks for digging into it more. If I recall CEF used to be very close to 50/50 gold/silver. Now it is around 2/3 gold and 1/3 silver so as you say it moves with gold more than ever. Good time to be long CEF!
CEF domiciled in Canada. PFIC? Problem for US investors? (I would probably buy if I were Canadian).
BeaBaggage profile picture
PFIC ok in an IRA..in a taxable acct, there is a lot of extra paperwork etc
@beabaggage - exactly! PFIC means put in IRA for sure
Have held for a decade or more. If it's treated differently in my taxable account, it's news to me (and Turbo Tax).
james7coffey profile picture
I have followed $CEF even when it was the Central Fund of Canada. I think it is a good investment.
gquarto profile picture
This is good article. Held CEF since 2012 when I bought it @22 usd
In April, I shifted some a lot of my gains from stocks to CEF and averaging a purchasing cost of 16.25
Long CEF
Silver and gold should be quoted in two separate prices: the prices established by the financial instruments like futures, GLD and CEF and the average prices established by the physical market like bars, coins and bullion available to consumers. Why is this not done?
What? Who says it's not. There's a spot market for gold, a futures market (multiple), and so forth. What are you talking about.
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