GTU

Discussion of the Gold portion of the Permanent Portfolio

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stuper1
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GTU

Post by stuper1 » Tue Aug 27, 2013 6:00 pm

GTU has been selling at a discount ever since the big gold drop in April.  The discount doesn't seem to be getting any less even with the price increase over the last two months.

I've been waiting for the discount to decrease, or go back to a premium, so I can sell and buy some physical gold.

Does anyone have any explanations for why the discount continues?

Is this unusual for GTU?
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buddtholomew
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Re: GTU

Post by buddtholomew » Tue Aug 27, 2013 6:58 pm

Good question. I stayed away from GTU for this reason alone.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
Libertarian666
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Re: GTU

Post by Libertarian666 » Tue Aug 27, 2013 7:35 pm

buddtholomew wrote: Good question. I stayed away from GTU for this reason alone.
On the other hand, buying when the discount is that big seems like a pretty good deal. I'm pretty sure that the discount can't increase indefinitely; there is some provision for in-kind redemption if it gets too big, I believe.
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Re: GTU

Post by steve » Wed Aug 28, 2013 8:56 am

stuper1 wrote: GTU has been selling at a discount ever since the big gold drop in April.  The discount doesn't seem to be getting any less even with the price increase over the last two months.

I've been waiting for the discount to decrease, or go back to a premium, so I can sell and buy some physical gold.

Does anyone have any explanations for why the discount continues?

Is this unusual for GTU?

GTU is a closed end fund and although Gold price has increased in the last two months the sentiment of many holders has not changed to positive and many like yourself want to sell their holdings, This is one of the reasons I like GTU , when it is time to rebalance I can buy at discount and sell at premium, a two month rise is not long enough for sentiment to turn around, remember most people lose because of their emotions, My guess is at some point in time when Gold is the assest to have and everyone wants it GTU will sell at a premium rather then a discount. 
modeljc
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Re: GTU

Post by modeljc » Fri Nov 22, 2013 3:42 pm

GTU selling for the biggest discount I can remember or -7.55%.  Seems like a good deal if you have a loss in GLD and then pick up the discount plus a little tax loss!  Or to re balance your position.  The discount is probably there as the market believes that gold will break to new lows?
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jason
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Re: GTU

Post by jason » Fri Nov 22, 2013 4:35 pm

stuper1 wrote: GTU has been selling at a discount ever since the big gold drop in April.  The discount doesn't seem to be getting any less even with the price increase over the last two months.

I've been waiting for the discount to decrease, or go back to a premium, so I can sell and buy some physical gold.

Does anyone have any explanations for why the discount continues?

Is this unusual for GTU?
I own GTU and look at the discount regularly. The highest I have seen it is 7.9% at market close, but it was under 3% a few weeks ago.  It tends to fluctuate.  While gold was climbing, it generally got smaller, and when the gold price was falling, it generally got bigger.  The discount can change a lot in a single day.  The way I look at it, the long term capital gains tax on GTU is only 20% instead of 28% for a gold ETF (when the proper paperwork is filed), so even if the discount is 8% bigger than what I paid when I sell, I will break even as compared to an ETF.  I bought it at around a 3% discount so as long as I sell it at a discount of 11% or less, I am not being hurt by the discount as compared to buying physical gold or an ETF, because of the 8% tax advantage.  My understanding is that GTU used to sell at a large premium of 8% or so.  Buying at that premium would make me nervous.  I think now is a great time to buy GTU.
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Re: GTU

Post by modeljc » Fri Nov 22, 2013 4:51 pm

jason wrote:
stuper1 wrote: GTU has been selling at a discount ever since the big gold drop in April.  The discount doesn't seem to be getting any less even with the price increase over the last two months.

I've been waiting for the discount to decrease, or go back to a premium, so I can sell and buy some physical gold.

Does anyone have any explanations for why the discount continues?

Is this unusual for GTU?
I own GTU and look at the discount regularly. The highest I have seen it is 7.9% at market close, but it was under 3% a few weeks ago.  It tends to fluctuate.  While gold was climbing, it generally got smaller, and when the gold price was falling, it generally got bigger.  The discount can change a lot in a single day.  The way I look at it, the long term capital gains tax on GTU is only 20% instead of 28% for a gold ETF (when the proper paperwork is filed), so even if the discount is 8% bigger than what I paid when I sell, I will break even as compared to an ETF.  I bought it at around a 3% discount so as long as I sell it at a discount of 11% or less, I am not being hurt by the discount as compared to buying physical gold or an ETF, because of the 8% tax advantage.  My understanding is that GTU used to sell at a large premium of 8% or so.  Buying at that premium would make me nervous.  I think now is a great time to buy GTU.
A little paper work is not a worry for me to pick up 20% rate vs 28% on the capital gains tax.  Thanks for reminding me of this break!  Or maybe I did not remember! 
stuper1
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Re: GTU

Post by stuper1 » Fri Nov 22, 2013 4:58 pm

Jason,

Your 8% tax decrease only applies to the profit between when you buy and sell.

Your change in discount applies to the final total sale price.

Let's say you buy 1 oz when the discount is 3% and the spot price is $1,000/oz, so you pay $970.  Then, you sell when the discount is 11% and the spot price is $3,000/oz, so you get $2,670.  You've made $1,700 before taxes, and then you pay 20% in taxes, so your final profit is $1,360.  If you had used IAU instead, your final profit would have been 72% of the $2,000 price difference or $1,440. 

Fortunately, when the spot price goes up, the discount should reduce, and probably will become a premium.  That's when GTU will beat IAU by quite a bit.  You'll get a tax break, plus you'll get a premium on top.
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Re: GTU

Post by PP67 » Fri Nov 22, 2013 5:50 pm

It looks like GTU might be currently selling at a 7.5% discount (per some handy spreadsheet someone on this forum provided)...

I have been thinking of selling all my GLD in my taxable account (which would be a large loss) and replacing it with GTU...  Again, I am still no sure about the wash rule on this which is what is really holding me back from doing a wholesale swap...

Can I carry forward my tax loss since I won't have much in the way of passive income this tax year to offset it?

I do need to sell some VTI to rebalance but I wasn't going to do that until after the first of the year for tax reasons...

Any suggestions?

Also what is the paperwork that is required to get the favorable tax treatment?  Is it just filed the year you buy it?

Thanks!
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Re: GTU

Post by rickb » Sat Nov 23, 2013 12:10 am

PP67 wrote: It looks like GTU might be currently selling at a 7.5% discount (per some handy spreadsheet someone on this forum provided)...

I have been thinking of selling all my GLD in my taxable account (which would be a large loss) and replacing it with GTU...  Again, I am still no sure about the wash rule on this which is what is really holding me back from doing a wholesale swap...

Can I carry forward my tax loss since I won't have much in the way of passive income this tax year to offset it?

I do need to sell some VTI to rebalance but I wasn't going to do that until after the first of the year for tax reasons...

Any suggestions?

Also what is the paperwork that is required to get the favorable tax treatment?  Is it just filed the year you buy it?

Thanks!
My understanding (and I am not a financial panther - please verify with your own tax professional) is

1) GLD and GTU should not be subject to wash rules (GLD/IAU/SGOL all probably would be, and GTU/PHYS probably would be)

2) You should be able to carry forward a loss on a sale of GLD.  Note that long term gains in GLD are taxed at the collectibles rate, so offsetting long term gains in (say) VTI with losses in GLD is not exactly an even trade.  This is an area you really want to talk to a tax professional about.

3) The paperwork allowing gains in GTU to be treated as gains from a passive foreign investment corporation is form 8621.  You have to file it every year you own shares in the trust.
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Re: GTU

Post by modeljc » Sun Nov 24, 2013 10:24 am

I looked at the GTU web site and can't find out how they audit the physical gold.  Do they spot check or do they count their entire holdings?

Any link or information will be appreciated.
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Re: GTU

Post by rickb » Sun Nov 24, 2013 11:39 am

modeljc wrote: I looked at the GTU web site and can't find out how they audit the physical gold.  Do they spot check or do they count their entire holdings?

Any link or information will be appreciated.
Per the latest long form prospectus (page 9):

5. The gold bullion held in storage on behalf of Gold-Trust shall be inspected annually and spot inspected
periodically by bar number, refiner, weight and purity in the presence of at least one Trustee or officer of
Gold-Trust, at least one representative of Gold-Trust’s auditors and one or more Bank representatives.


Note that unlike the ETFs (GLD, IAU, SGOL), their holdings do not change very often, so these audits are presumably the only time anyone enters the vault(s) where the gold is stored.
modeljc
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Re: GTU

Post by modeljc » Sun Nov 24, 2013 1:50 pm

rickb wrote:
modeljc wrote: I looked at the GTU web site and can't find out how they audit the physical gold.  Do they spot check or do they count their entire holdings?

Any link or information will be appreciated.
Per the latest long form prospectus (page 9):

5. The gold bullion held in storage on behalf of Gold-Trust shall be inspected annually and spot inspected
periodically by bar number, refiner, weight and purity in the presence of at least one Trustee or officer of
Gold-Trust, at least one representative of Gold-Trust’s auditors and one or more Bank representatives.


Sounds safe to me.  Looking to exchange GLD on Monday if the Discount is above 7%.  Thanks for saving me so much time and effort.

Note that unlike the ETFs (GLD, IAU, SGOL), their holdings do not change very often, so these audits are presumably the only time anyone enters the vault(s) where the gold is stored.
modeljc
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Re: GTU

Post by modeljc » Sun Nov 24, 2013 5:58 pm

Can someone talk me out of selling GLD and buying GTU?
1.  GTU expenses are a little lower
2.  GTU is held outside of the U.S.
3.  GTU has favorable tax treatment.
4.  GTU holds physical gold vs paper gold
5.  GTU has a better audit than the others
6.  I get a tax loss to sell GLD.
7.  I OK with form 8621 and the five minutes of work
8.  I Ok that I must file my return by mail.
9.  GTU is selling at a big discount of over 7%
10.  I am OK if the discount opens up to 15%

Thanks for any help!
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Re: GTU

Post by Libertarian666 » Mon Nov 25, 2013 9:59 am

modeljc wrote: Can someone talk me out of selling GLD and buying GTU?
1.  GTU expenses are a little lower
2.  GTU is held outside of the U.S.
3.  GTU has favorable tax treatment.
4.  GTU holds physical gold vs paper gold
5.  GTU has a better audit than the others
6.  I get a tax loss to sell GLD.
7.  I OK with form 8621 and the five minutes of work
8.  I Ok that I must file my return by mail.
9.  GTU is selling at a big discount of over 7%
10.  I am OK if the discount opens up to 15%

Thanks for any help!
I'm going to buy some more GTU when I get my year-end bonus, so a discount is fine with me!
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Re: GTU

Post by modeljc » Mon Nov 25, 2013 12:01 pm

Libertarian666 wrote:
modeljc wrote: Can someone talk me out of selling GLD and buying GTU?
1.  GTU expenses are a little lower
2.  GTU is held outside of the U.S.
3.  GTU has favorable tax treatment.
4.  GTU holds physical gold vs paper gold
5.  GTU has a better audit than the others
6.  I get a tax loss to sell GLD.
7.  I OK with form 8621 and the five minutes of work
8.  I Ok that I must file my return by mail.
9.  GTU is selling at a big discount of over 7%
10.  I am OK if the discount opens up to 15%

Thanks for any help!
I'm going to buy some more GTU when I get my year-end bonus, so a discount is fine with me!
I did my trade today.  Did a limit order for blocks of 500 shares. 

I failed to list my #11 reason to buy GTU.  They don't lend out the gold so it avoids another risk
Libertarian666
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Re: GTU

Post by Libertarian666 » Mon Nov 25, 2013 3:04 pm

I should have said "always use limit orders with GTU". That's because it has very low volume and the bid/ask spread can be much larger than with other higher-volume securities including CEF.
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Re: GTU

Post by PP67 » Mon Nov 25, 2013 5:34 pm

I am completely new to all this...

Looks like GTU closed at $42.93 today at a NAV of -7.81%...

modeljc, just curious: What was your buy limit order and how did you come to that number?

Thanks!
modeljc
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Re: GTU

Post by modeljc » Mon Nov 25, 2013 6:00 pm

PP67 wrote: I am completely new to all this...

Looks like GTU closed at $42.93 today at a NAV of -7.81%...

modeljc, just curious: What was your buy limit order and how did you come to that number?

Thanks!
I try to stay a little above the bid.  If you hit the asked priced they jump it up.  So you next order will cost more.  If you are are trying to place a large order you need to allow a couple of hours and be very patient.  Today was was really good as the gold price did not move up until the afternoon and things did not move very fast.  I think I got above a 8% discount on my buys when it closed today. 
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Re: GTU

Post by fishdrzig » Fri Nov 29, 2013 7:03 am

Does form 8261 need to be filled out if GTU is owned in a tax deferred account?  Does anybody know?
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