Buying GTU now?

Discussion of the Gold portion of the Permanent Portfolio

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Reub
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Re: Buying GTU now?

Post by Reub » Wed Nov 05, 2014 3:58 pm

buddtholomew wrote: The question is how is KShartle doing?
Is it true that he has been banned from these forums? If so, why?
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technovelist
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Re: Buying GTU now?

Post by technovelist » Thu Nov 06, 2014 10:56 am

Ad Orientem wrote: 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.
I'm not sure how a closed end fund trading at a discount is a poor choice for the gold component, especially when there is a mechanism to keep the discount from increasing indefinitely. My understanding (which I need to confirm when I get the chance to talk to them) is that there is a way to cash out if the discount exceeds a certain percentage (I believe around 10%) for a certain length of time. So now that the discount is close to the limit set by that mechanism, the only extra volatility should be on the upside.
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Re: Buying GTU now?

Post by rickb » Thu Nov 06, 2014 9:35 pm

technovelist wrote: My understanding (which I need to confirm when I get the chance to talk to them) is that there is a way to cash out if the discount exceeds a certain percentage (I believe around 10%) for a certain length of time. So now that the discount is close to the limit set by that mechanism, the only extra volatility should be on the upside.
GTU's prospectus includes a "redemption" section that says you can redeem your "units" (shares) at any time - but redeeming basically means selling your units to the fund (at a less than market price) so you'd do better selling the shares on the market.  If enough shareholders redeemed their units the fund would presumably have to sell some gold, but (at the current discount) I think the net effect would be the remaining units would correspond to slightly more gold per unit.  All closed end funds have an ultimate "hammer" option, which is to dissolve the fund by selling the assets and distributing the proceeds to the shareholders.

You may be thinking of PHYS, which does have a redeem-your-shares-for-gold option.  This is limited to amounts of one or more London Good Delivery bars, i.e. 400 oz bars.
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technovelist
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Re: Buying GTU now?

Post by technovelist » Fri Nov 07, 2014 12:25 pm

rickb wrote:
technovelist wrote: My understanding (which I need to confirm when I get the chance to talk to them) is that there is a way to cash out if the discount exceeds a certain percentage (I believe around 10%) for a certain length of time. So now that the discount is close to the limit set by that mechanism, the only extra volatility should be on the upside.
GTU's prospectus includes a "redemption" section that says you can redeem your "units" (shares) at any time - but redeeming basically means selling your units to the fund (at a less than market price) so you'd do better selling the shares on the market.  If enough shareholders redeemed their units the fund would presumably have to sell some gold, but (at the current discount) I think the net effect would be the remaining units would correspond to slightly more gold per unit.  All closed end funds have an ultimate "hammer" option, which is to dissolve the fund by selling the assets and distributing the proceeds to the shareholders.

You may be thinking of PHYS, which does have a redeem-your-shares-for-gold option.  This is limited to amounts of one or more London Good Delivery bars, i.e. 400 oz bars.
No, I'm referring to GTU. I don't understand the redemption option mentioned in their prospectus. I wrote to them to ask how it would actually work and they called me back but unfortunately I was on a critical phone call and couldn't answer them at that time. I'll contact them again Monday or Tuesday when I'm at home and have the time to spare and a phone that doesn't use minutes when I'm on hold.
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Re: Buying GTU now?

Post by rickb » Fri Nov 07, 2014 11:49 pm

technovelist wrote: No, I'm referring to GTU. I don't understand the redemption option mentioned in their prospectus. I wrote to them to ask how it would actually work and they called me back but unfortunately I was on a critical phone call and couldn't answer them at that time. I'll contact them again Monday or Tuesday when I'm at home and have the time to spare and a phone that doesn't use minutes when I'm on hold.
Definitely post what they have to say - but I'm pretty sure the prospectus is talking about turning in your shares to the fund in exchange for the market value of the shares in cash, as opposed to the amount of gold the shares correspond to.
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Re: Buying GTU now?

Post by technovelist » Wed Nov 12, 2014 3:18 pm

I finally got their answer on their "redemption" policy, and yes, it is a truly bogus policy that doesn't involve NAV.
Basically the only check on the discount is that someone could buy up 90% of the shares in the trust and take the gold or sell it and take the cash. Presumably that could happen if the discount gets large enough to make it worthwhile for someone with a billion or so in spare cash.
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