Summary:
- Gold & silver prices are consolidating for a couple of weeks.
- Central Fund of Canada & Central Gold Trust offer a better discount than last month.
- Trying to arbitrage this discount might not be a good idea.
Gold is in correction mode for two weeks, and silver for one month. Seasonality is not supportive any more for precious metals (read here). The fundamental picture remains unclear: inflation stays low, production prices are not a safe way to estimate a bottom, and the concentration of future contracts by a few major players has not changed. Miners are following the move down (GDX, GDXJ). I wrote here in February that it was a bit premature to call for the end of the precious metals bear market. One month later, gold is still above its 200-day simple moving average, but silver fell back below.
My aim here is not to make a prediction, but to show investors where they can find the best value for their money. It might be or not a good time to invest in precious metals, however there is no bad time to buy reasonable amounts as insurance. The next table shows discounts, premiums and real metal allocated for some Canadian funds on 3/24/2014. They are an alternative to ETFs likeGLD, SLV, PPLT, PALL.
|
Data: 3/24/2014 on close |
Tickers |
+Premium -Discount |
Annual Fees |
% of NAV in bullion* |
|
Central Fund of Canada |
NYSE:CEF TSX: CEF.A |
-6.4% |
0.45% |
99.3% (gold 58.4%, silver 40.9%) |
|
Central Gold Trust |
NYSE:GTU TSX: GTU.UN |
-5.6% |
0.35% |
97.8% |
|
Sprott Physical Gold Trust |
NYSE:PHYS TSX: PHY.U |
-0.29% |
0.35% |
99.3% |
|
Sprott Physical Silver Trust |
NYSE:PSLV TSX: PHS.U |
+1.9% |
0.45% |
99.4% |
|
Sprott Physical Platinum & Palladium Trust |
NYSE:SPPP TSX: PPT.U |
+2.95% |
0.5% |
100% |
*complement is in certificates and cash assets.
CEF and GTU discounts are up since last month, providing an additional safety margin in case metal prices fall lower. Sprott funds are less attractive. An arbitrage, for example buying GTU and shorting GLD, is not a so good idea. Discounts in CEF and GTU have been oscillating between 4% and 8% for two years. At the end, borrowing costs might eat the profit and possibly more.
About Fred Piard
In his first book Quantitative Investing (Harriman House), Fred explains how you can build yourself robust portfolios with simple and powerful strategies. A book on statistical fundamental analysis is planned for Q4 2014 (same editor).
Fred shares his portfolio positions and market outlook in a weekly newsletter (ypafi.com).
He holds a PhD in computer science, an MSc in software engineering, an MSc in civil engineering, and is self-taught in finance. For two decades, Fred has been a consultant for companies and public agencies in various sectors and countries.
