Shareholder activists are trying to unlock the NAV discount on GTU

[Libertarian666]

https://screener.fidelity.com/ftgw/etf/ ... _____TO464

[Libertarian666]

I just bought some more, and I'm going to vote for the dissidents in the proxy fight.

[Wooly Mammoth]

Are you guys sure you know what you're doing? The above link only describes one side of the story. GTU directors are emphatically recommending rejection of the 'Polar Proposal', saying it is both shortsighted and self-serving.

http://www.stockhouse.com/news/press-re ... reject-the

I logged on here as a fairly new PP convert, hoping to read a nuanced discussion on this topic, but so far everyone seems pretty gung ho for the hostile takeover. Are there any opposing opinions?

Right now I have ~70% of my gold holdings with GTU, so this is a big issue for me. Frankly, considering the role gold is supposed to play in the PP, This fracas has me thinking I should just convert all of my gold holdings into physical gold in my safe deposit box, convenience be damned.

In the PP, gold is supposed to be SAFE! Not the subject of Machiavellian maneuvering by avaricious f##kers.

[rickb]

IMO, one of GTU's advantages relative to the gold ETFs is that the gold it owns is completely beyond the reach of anyone wanting to manipulate the price of gold.  In this way, owning GTU is very much like owning gold coins you keep in a safety deposit box.  It's gold that's out of circulation.  Period.

In contrast, the ETFs are structured in such a way that the gold they own is readily available, in very large quantities. 

If I were a manipulator, I'd hate GTU.  A 22 tonne pile of gold that I can't get my hands on?  How DARE they???

Maybe Polar is not a front for one of the rumored gold price manipulators and all they want is for GTU to track the price of gold better.  In general, I don't think hedge funds are the most trustworthy of folks - so maybe they are and what they want is something else. 

[Pointedstick]

I own some GTU but have not received any communications from one interest or the other. How are people being communicated with?

[Wooly Mammoth]

I received a phone call to say they would be sending an info package, which I haven't received yet. My online broker also had postings outlining both sides' positions (but no neutral third party analysis).

[dragoncar]

That write up has so many half truths that it seems really slimy.  For example, they compare increases in Annual expenses to total discount to nab. Similarly for tax efficiency.

As for me, I'm happy to have a discount when gold sentiment is low (when I'm buying) and a premium when sentient is high (when I'm selling)

I guess you'd feel differently if you needed to draw down your holdings

Either way this is good because it proves there is mechanism to fix the discount if things get seriously ridiculous.  It might not pass at 8% but might pass at 15%. This reminder should serve to limit the discount in the future.

[Libertarian666]

I'm pretty sure the dissident shareholders are not angels.
But I'm absolutely sure that it really sucks to have no guarantee that the discount cannot go to 100%.
So current management should come up with a proposal to limit the discount to some reasonable percentage rather than just blowing off proposals that might interfere with their cushy positions.

[bedraggled]

People,

I need educating, please.

I have heard about these discounts and premiums vs. NAV.  Does that mean, for example, that GTU cannot shoot to the moon if bullion rises to $10,000, and not plummet approximately 80% if bullion drops to $250/ oz?

Any input is appreciated.

Thanks,
Bedraggled

[rickb]

People,

I need educating, please.

I have heard about these discounts and premiums vs. NAV.  Does that mean, for example, that GTU cannot shoot to the moon if bullion rises to $10,000, and not plummet approximately 80% if bullion drops to $250/ oz?

Any input is appreciated.

Thanks,
Bedraggled

GTU is a closed end fund.  They own a pile of gold and their shares correspond to fractional ownership of this pile of gold.  Up to this point it's similar to the gold ETFs. 

Unlike the ETFs, there's no set of "authorized participants" who can freely trade shares for gold or vice versa whenever they want for whatever reason they want.  This provision of the ETFs tends to keep the share price of the ETFs close to the NAV of the underlying gold (if it gets out of whack in either direction the APs can arbitrage the difference and make money by doing so).  On the other hand, this provision of the ETFs means the amount of gold they have (and number of shares) is constantly changing - for reasons known only to the APs.  It's not uncommon for GLD's inventory to go up or down by 50,000 - 100,000 ounces per day.  Why?  Who knows.

GTU's gold (currently) just sits in a vault.  No one can trade shares for this gold.  If you want to own a share's worth of this gold, you have to buy a share of the fund on the open market.  This means the market price for the shares can drift from the NAV in either direction.  The fund occasionally creates batches of new shares and buys a corresponding amount of gold if the market price drifts higher than the NAV, and doing this tends to limit the premium.  Currently, the fund does nothing if the market price drifts low (this is what the shareholder proposal is about).  In particular, no one can buy shares, trade the shares for the gold, and sell the gold.  If this were possible, the discount would tend to be limited as well - but the fund would have to deal with these redemption requests.  PHYS is set up very much like GTU, but also has a redemption feature allowing shareholders to exchange shares for gold (only in large amounts).

So, if bullion rises to $10,000/oz would GTU shoot to the moon as well?  Probably, but when gold is rising GTU tends to sell at a premium so GTU would likely shoot even higher than gold. 

Would GTU plummet approximately 80% if bullion drops to $250/oz.  Probably, but when gold is falling GTU tends to sell at a discount so GTU would likely drop even more than gold.

[Edit: add consequences of premium/discount to the hypotheticals]

[bedraggled]

So now that I understand premiums and discounts to NAV a little bit better, is GTU a great place to be?

Bedraggled

[Libertarian666]

So now that I understand premiums and discounts to NAV a little bit better, is GTU a great place to be?

Bedraggled

I like buying it when it is at a significant discount, as it is currently (about 8%).

By the way, I got a voice mail from them yesterday about the proxy fight and called them back. I told them that although they might win this particular proxy fight, if they don't have a solution to the possibility of having a large discount for a long time, they will probably lose a proxy fight one of these days.

The person I talked to said that she understood my points and that they were valid, and that she would make sure management heard them.

So we'll see...

[rickb]

So now that I understand premiums and discounts to NAV a little bit better, is GTU a great place to be?

Bedraggled

Opinions vary - see http://gyroscopicinvesting.com/forum/go ... al-pp-etf/

On the plus side GTU has vastly fewer moving parts than the ETFs and its managers have been running a similar fund (CEF - a gold/silver mix) for over 50 years with no hint of any hanky panky (GLD is the oldest gold ETF and it's only 10 years old) .  On the minus side GTU doesn't precisely track the price of gold.

[bedraggled]

Thank you, gentlemen.

This is always a great place to be.

Bedraggled

[Wooly Mammoth]

I received the package from Polar yesterday. Their position, at least as they present it, seems quite reasonable. According to them, the reason GTU is discounted as much as it is is because shareholders are unable to redeem their shares for physical gold at NAV. If this was possible, the shares would never sell at much of a discount because then savvy investors would just purchase discounted shares and redeem them for gold at full value.

The amendment they are proposing would allow shareholders to redeem their units for gold at the end of any given month, with the application deadline set at the middle of the month. The minimum quantity you could redeem for is some Big Boy unit (sorry, the name slips my mind) worth around half a million at current prices, so it would not directly affect small fry investors in terms of their ability to redeem for physical gold, but the overall effect would be to decrease the discount, increasing the value of everyone's shares in the short term.

They also want to replace the board with their own selected members, claiming intransigence and nepotism on the part of the current board. The replacements they are recommending all have glowing resumes, but who knows what hidden agenda they might put into play once they seize control?

Personally, I don't like the excitement, especially when it comes to gold. The PP strategy dictates that you should have as few intermediaries as possible between you and your investment, and those you do have should be as passive as possible to avoid incompetent or malfiecent maneuverings in an effort to wring out an additional fraction of a percent. Would the new board be better? I don't want to wait until the next SHTF economic crisis to find out.

[rickb]

Not exactly unbiased, but two major shareholders have announced their positions:

Against: http://www.marketwatch.com/story/long-t ... -181733933

For: http://www.businesswire.com/news/home/2 ... S3kT2ZQSdM

[dualstow]

I own GTU in two different brokerage houses and have received no communication from them. Feeling a little left out...

[dualstow]

Hah, thanks Chief! The feeling is mutual.

[Greg]

The minimum quantity you could redeem for is some Big Boy unit (sorry, the name slips my mind) worth around half a million at current prices, so it would not directly affect small fry investors in terms of their ability to redeem for physical gold, but the overall effect would be to decrease the discount, increasing the value of everyone's shares in the short term.

http://en.wikipedia.org/wiki/Good_Delivery

I think you're talking about this. 400 oz. (12.4 kg)

[dragoncar]

Thanks for the links Rickb.. Gotta say I still agree with Day.  The current boards fees seem reasonable.    I'd be happy to replace a few perhaps but replace all of them?  All they have to do is maintain the trust, not build a rocket to the moon. Polar just seems really slimy, pretending to have my interests in mind but clearly they are out to turn a quick profit

[Wooly Mammoth]

The minimum quantity you could redeem for is some Big Boy unit (sorry, the name slips my mind) worth around half a million at current prices, so it would not directly affect small fry investors in terms of their ability to redeem for physical gold, but the overall effect would be to decrease the discount, increasing the value of everyone's shares in the short term.

http://en.wikipedia.org/wiki/Good_Delivery

I think you're talking about this. 400 oz. (12.4 kg)

Yes, that's it. I didn't have the package with me when I wrote my post.

[coinstar]

Thanks for the links Rickb.. Gotta say I still agree with Day.  The current boards fees seem reasonable.    I'd be happy to replace a few perhaps but replace all of them?  All they have to do is maintain the trust, not build a rocket to the moon. Polar just seems really slimy, pretending to have my interests in mind but clearly they are out to turn a quick profit

HARRY BROWNE would say thats how the free market works! Someone else is out to make a profit but its mutually beneficial and you also profit. WHO CARES if they make a profit as long as YOU DO TOO!?

[dragoncar]

Thanks for the links Rickb.. Gotta say I still agree with Day.  The current boards fees seem reasonable.    I'd be happy to replace a few perhaps but replace all of them?  All they have to do is maintain the trust, not build a rocket to the moon. Polar just seems really slimy, pretending to have my interests in mind but clearly they are out to turn a quick profit

HARRY BROWNE would say thats how the free market works! Someone else is out to make a profit but its mutually beneficial and you also profit. WHO CARES if they make a profit as long as YOU DO TOO!?

I would prefer to make a larger profit and not have tax inefficiency eat into my returns

[bedraggled]

So, is GTU, with its discounts and premiums to NAV, like a gold mining stock which may rise or fall based on investor sentiment re bullion prospects?  If GTU is similar to a gold mining stock, just how similar or different?

Thanks.

[dragoncar]

Got my vote info via email today.  I can vote online.