Buying GTU now?

Discussion of the Gold portion of the Permanent Portfolio

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rickb
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Re: Buying GTU now?

Post by rickb » Sat Nov 01, 2014 11:16 am

barrett wrote: Totally ignorant about GTU and I don't know what the heck you guys are talking about when you say that GTU is "trading at a discount." Does this ETF really not track the price of gold closely? If so, why hold it? Thanks.
[sorry for the repeat of much of what pugchief just posted]

GTU is a closed end fund, not an ETF.  It has a fixed amount of gold and a fixed number of shares.  It's easy to compute the exact NAV (amount of gold times price of gold divided by number of shares).  The shares trade for whatever anyone is willing to buy/sell them for, so can trade at a discount or premium relative to the NAV.  The fund publishes this data (including the discount/premium) every day on their website at http://www.gold-trust.com/asset_value.htm

The amount of gold actually changes occasionally (coincident with the issue of a new block of shares), but very infrequently.

ETFs basically take this model and add several layers of complexity to it.  They define a ratio of shares to gold (which slowly dwindles due to their fees) and allow their "authorized participants" (big banks) to trade gold for shares (this creates new shares) or shares for gold (this destroys shares) at this ratio whenever they want.  The amount of gold they own and the number of outstanding shares change frequently.  You have to look pretty hard, but you can find these numbers on their websites and I think they're updated daily.  Because shares and gold are fungible, the share price in the market stays pretty close to its NAV.  If it drifts in either direction the authorized participants can make money by buying shares, trading shares for gold, and selling the shares gold on the market, or vice versa.

GLD, IAU, and SGOL are all ETFs.  GTU and PHYS are closed end funds.

The tax treatment is different as well.  The ETFs are treated for tax purposes the same as owning gold.  So you pay the collectibles tax on any profit you make when you sell (just like buying and selling gold coins).  GTU and PHYS are both Canadian, and qualify as "passive foreign investment companies".  If you file the right form every year you own them (8621) you end up paying long term capital gains.

The bottom line is GTU (and PHYS) don't end up tracking the price of gold as closely as the ETFs - but they're arguable safer (far fewer moving parts, so far fewer ways they can break down) and provide better tax treatment.  Also, if you believe in the theory that the major banks (in particular JP Morgan) manipulate the price of gold, the gold in ETFs is available to them to use in this way (JP Morgan is at least an authorized participant, if not the actual custodian for every gold ETF).  The gold in the closed end funds just sits in a vault - nobody can use it for anything.

[Edit: buy shares, trade shares for gold, and then sell the gold]
Last edited by rickb on Sat Nov 01, 2014 1:33 pm, edited 1 time in total.
barrett
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Re: Buying GTU now?

Post by barrett » Sat Nov 01, 2014 12:47 pm

Thank you pugchief & rickb. I get it... more or less. Potentially an opportunity to own GTU, and potentially a headache if one doesn't enter and exit at the right time. Thanks for taking the time to fill me in. Much appreciated.
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Re: Buying GTU now?

Post by goodasgold » Sat Nov 01, 2014 1:31 pm

Thanks to pugchief and rickb for their lucid explanations. The ideal, I think, would be to own a mixture of physical, ETFs and GTU, so you can buy and sell part of your gold at any time at the most opportune price. It would be bad news to own only GTU and then be forced to sell it at the worst time, when the shares are selling at a discount. The opposite is true, of course, when GTU is selling at a lovely premium.
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pugchief
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Re: Buying GTU now?

Post by pugchief » Sat Nov 01, 2014 1:47 pm

goodasgold wrote: Thanks to pugchief and rickb for their lucid explanations. The ideal, I think, would be to own a mixture of physical, ETFs and GTU, so you can buy and sell part of your gold at any time at the most opportune price. It would be bad news to own only GTU and then be forced to sell it at the worst time, when the shares are selling at a discount. The opposite is true, of course, when GTU is selling at a lovely premium.
Exactly. And since presumably you would be buying GTU when gold is low and selling when gold is high, the premium/discount should in theory work to your advantage.
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Re: Buying GTU now?

Post by Dindin » Sat Nov 01, 2014 2:11 pm

I'm sorry for my ignorance but I couldn't understand how much it costs to hold GTU...
I know that IAU cost per year is 0.25%
I saw that GTU  has management fees of 0.192% and expanse ratio of .35 %.... So do I pay both..? I don't understand... please help me understand this.

Thanks  :-\
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pugchief
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Re: Buying GTU now?

Post by pugchief » Sat Nov 01, 2014 3:03 pm

Dindin wrote: I'm sorry for my ignorance but I couldn't understand how much it costs to hold GTU...
I know that IAU cost per year is 0.25%
I saw that GTU  has management fees of 0.192% and expanse ratio of .35 %.... So do I pay both..? I don't understand... please help me understand this.

Thanks  :-\
The expense ratio is inclusive of the management fee. Total cost is 0.35% per year plus any commissions to your broker incurred when you buy or sell.
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Re: Buying GTU now?

Post by Dindin » Sun Nov 02, 2014 1:43 am

Thank you  :)
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Re: Buying GTU now?

Post by Ad Orientem » Sun Nov 02, 2014 2:06 pm

At the risk of beating a dead horse, GTU is a closed ended fund. This means it DOES NOT TRACK the price of gold. It can, and regularly does trade at either a discount or premium relative to the price of gold. This makes it a poor choice for the gold component in a PP. However it can be a very good choice for speculating in Gold. I have to admit that a near 10% discount is damned tempting, especially if you can afford to hang until gold reverses course.
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Re: Buying GTU now?

Post by technovelist » Wed Nov 05, 2014 9:27 am

market timer wrote:
technovelist wrote:
Reub wrote: I just sold my remaining shares of GTU and bought GLD instead,  locking in a loss. So now is probably the perfect time to buy. :)
If I had any spare cash to buy gold, I would definitely be buying GTU. Why not get a bargain?
Aren't you like 75% gold and gold miners? How are you holding up during this selloff?
I'm about 50% gold and no miners; I consider the latter a different asset class that I'm not interested in. As for how I'm holding up, personally I'm fine and even my wife isn't freaking out (yet). I am rethinking my retirement strategy though...
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Re: Buying GTU now?

Post by buddtholomew » Wed Nov 05, 2014 10:25 am

The question is how is KShartle doing?
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Re: Buying GTU now?

Post by barrett » Wed Nov 05, 2014 10:37 am

The K-Man is the Indiana Jones of investing. He's probably enjoying the current nuttiness. Plus he likes stocks a lot which have done pretty well recently.
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Re: Buying GTU now?

Post by goodasgold » Wed Nov 05, 2014 11:06 am

Ad Orientem wrote: ...GTU is a closed ended fund. This means it DOES NOT TRACK the price of gold.... I have to admit that a near 10% discount is damned tempting, especially if you can afford to hang until gold reverses course.
That's the whole point of a closed end fund, to buy low and sell high. I just bought some GTU, with more later. By owning just a portion my yellow stuff in GTU, when GTU is at a discount I can sell some physical or from an ETF if need be.

But won't it be lovely when GTU rebounds, as it must some day (preferably when I am still alive), and sells at a premium? As the gospel song goes, then it will be: "OH HAPPY DAY!!"
Last edited by goodasgold on Wed Nov 05, 2014 11:25 am, edited 1 time in total.
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