Spikes in Premium on PHYS

Discussion of the Gold portion of the Permanent Portfolio

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stuper1
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Spikes in Premium on PHYS

Post by stuper1 » Wed Nov 27, 2019 12:56 pm

I have some of my gold in PHYS, which is not an ETF but a closed-end fund. I have decided that I want to get out of PHYS into an ETF with a lower expense ratio. I've been watching the premium on PHYS to find a good time to sell. Unfortunately the premium has been negative since June 2017, except that on three days during that period, the premium has spiked to a positive value for one day only and then gone right back to negative. One day was in May 2018, the second in January 2019, and the third just a couple weeks ago.

Does anybody have an explanation for why the premium would spike to positive for a single day like that?
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Re: Spikes in Premium on PHYS

Post by Pet Hog » Wed Nov 27, 2019 10:17 pm

I'm in the same boat -- waiting for the PHYS premium to turn positive. The expense ratio is something like 0.48%. A bit too high, but I was hoping to take advantage of swings in the premium (buy negative, sell positive). I'm still clueless as to why anyone would sell when the premium is negative. How can that last for more than a day? Why don't more people buy when the premium is negative (like it has been for years) and bid up the price? Free money, no? Obviously, it's a feature of closed-end funds that I don't understand.

I think what happened a couple of weeks ago, when there was that spike, was that some fool bought PHYS with a market order just before the close and had to accept a high ask price. PHYS is relatively thinly traded, so there is a possibility that a few sellers pulling out at the last minute would leave only the Hail-Mary bid and ask prices.

Perhaps we, as sellers, should be using that strategy when the market's about to close!
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Re: Spikes in Premium on PHYS

Post by stuper1 » Thu Nov 28, 2019 10:00 am

Pet Hog,

That's an interesting theory. At first, I thought the hypothetical end-of-day purchase would have to be very large to move the premium needle by 1% or more. However, after delving into it a little, I'm thinking that's not true. If the very last purchaser of the day accepts a high ask price, even if he is only buying one unit (currently worth about $11.79), then that means that the total market value of the entire fund (currently worth about $2.3 billion) gets adjusted upward based simply on the number of units (currently about 200,000,000) times that high ask price. Am I understanding that correctly? So, that would show up as a high premium overnight, which presumably would drop right back down right after the market opens the next morning.
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Re: Spikes in Premium on PHYS

Post by Pet Hog » Thu Nov 28, 2019 5:02 pm

I think that's exactly how the stock market works. Whatever the last sale was, that sets the market cap. Even if it was just one share. And, as you say, the next morning the mistake gets fixed with the first trade, so there's no way for us to take advantage of it.
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Re: Spikes in Premium on PHYS

Post by boglerdude » Thu Nov 28, 2019 11:25 pm

non-trader here, if I want to sell this fund the "easy" way through Vanguard, what do I do. To avoid making a mistake. Might switch to Perth mint.
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Re: Spikes in Premium on PHYS

Post by Pet Hog » Fri Nov 29, 2019 12:47 am

I'm not sure I understand your question, boglerdude. I would suggest a limit order, priced at or a few cents above the current market price. Certainly I wouldn't sell with a market order and risk being taken advantage of.

To see the premium/discount curve, check out this link.

The low this year was about -1.8% in April/May, and it has slowly crept up, quite linearly (ignoring those spikes), to about -0.7% today. I am still hoping it gets consistently up to +1.0% (or more) soon, and then I'd sell. Then, maybe I'd buy again if it gets down to -1.5%, but maybe not -- with that relatively high expense ratio (0.48%), I wouldn't want to be forced to hold it again for too many years.
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Re: Spikes in Premium on PHYS

Post by pugchief » Fri Nov 29, 2019 10:54 am

If you wait until gold is in favor among 'dumb money' investors, it will be priced at a premium again.
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Re: Spikes in Premium on PHYS

Post by stuper1 » Tue Jan 14, 2020 5:15 pm

Don't look now, but PHYS closed with a very slightly positive premium today.
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Re: Spikes in Premium on PHYS

Post by Pet Hog » Tue Jan 14, 2020 5:45 pm

Well spotted! With no obvious end-of-day spike relative to other gold ETFs, perhaps we are finally truly getting into premium territory. I'll probably sell if the premium gets above 1%, but will keep an eye on the price and not rush it. It's not been above 1% since November 2016.

Thanks for the heads-up, stuper1!
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Re: Spikes in Premium on PHYS

Post by stuper1 » Tue Jan 14, 2020 6:20 pm

The premium went up last year for a couple weeks in January, so I've been keeping an eye on it, hoping for something similar this year. I still have no idea why that would be. Do people like to transact gold in January for some reason?
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Re: Spikes in Premium on PHYS

Post by Pet Hog » Tue Jan 14, 2020 10:10 pm

January appears to be the strongest month of the year. Image from this article.

Image
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Re: Spikes in Premium on PHYS

Post by Smith1776 » Fri Jan 17, 2020 2:18 am

https://www.cnbc.com/2020/01/15/bridgew ... -2000.html


“ The world’s largest hedge fund sees gold rising 30% to $2,000: ‘There is so much boiling conflict’”
"Talk is cheap. Show me the code." - Linus Torvalds
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Re: Spikes in Premium on PHYS

Post by sophie » Fri Jan 17, 2020 7:28 am

stuper1 wrote:
Tue Jan 14, 2020 6:20 pm
The premium went up last year for a couple weeks in January, so I've been keeping an eye on it, hoping for something similar this year. I still have no idea why that would be. Do people like to transact gold in January for some reason?
Just wanted to thank you guys for alerting me that the PHYS discount had evaporated. I sold it at a very slight premium (+0.01%) and replaced it with AAAU - which had a slight discount of -.10% No tax implications, it was in a Roth.

I suppose I could have waited for a better premium spread, but in the meantime the higher ER of PHYS would probably nibble that away. The discount now stands at -0.08%, so there's still time to act if anyone wants to do that.
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Re: Spikes in Premium on PHYS

Post by Pet Hog » Sat Feb 29, 2020 2:53 pm

Along with yesterday's big decrease in the price of gold, PHYS traded most of the day with a big discount. I added to my holdings (from IAU) when the discount was 2.38%. I'll be looking to exit next week if the discount shrinks or evaporates. According to the chart at the bottom of this page, the discount hasn't historically stayed below 2% for more than a few days.
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Re: Spikes in Premium on PHYS

Post by Pet Hog » Tue Mar 24, 2020 3:40 pm

Pet Hog wrote:
Sat Feb 29, 2020 2:53 pm
Along with yesterday's big decrease in the price of gold, PHYS traded most of the day with a big discount. I added to my holdings (from IAU) when the discount was 2.38%. I'll be looking to exit next week if the discount shrinks or evaporates. According to the chart at the bottom of this page, the discount hasn't historically stayed below 2% for more than a few days.
Sold those new shares of PHYS today when the premium was listed at 0.91%. The Sprott numbers, which are delayed and update only every few minutes, should be taken with a grain of salt. I kept an eye on the IAU/PHYS price ratio. It was 1.204 when I traded on Feb 29 and it was 1.178 when I traded today. Overall, I increased my number of IAU shares by 2.2% in a little over three weeks. Not bad. Somewhat risk-free. I still hold an equal dollar amount of PHYS shares, so if the premium goes up further (say, over 2%) I'll convert completely to IAU. I'll buy PHYS again if the discount gets above 2% (i.e., below -2%). And so on.
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Re: Spikes in Premium on PHYS

Post by jalanlong » Sun Feb 21, 2021 6:41 pm

Pet Hog wrote:
Tue Mar 24, 2020 3:40 pm
Pet Hog wrote:
Sat Feb 29, 2020 2:53 pm
Along with yesterday's big decrease in the price of gold, PHYS traded most of the day with a big discount. I added to my holdings (from IAU) when the discount was 2.38%. I'll be looking to exit next week if the discount shrinks or evaporates. According to the chart at the bottom of this page, the discount hasn't historically stayed below 2% for more than a few days.
Sold those new shares of PHYS today when the premium was listed at 0.91%. The Sprott numbers, which are delayed and update only every few minutes, should be taken with a grain of salt. I kept an eye on the IAU/PHYS price ratio. It was 1.204 when I traded on Feb 29 and it was 1.178 when I traded today. Overall, I increased my number of IAU shares by 2.2% in a little over three weeks. Not bad. Somewhat risk-free. I still hold an equal dollar amount of PHYS shares, so if the premium goes up further (say, over 2%) I'll convert completely to IAU. I'll buy PHYS again if the discount gets above 2% (i.e., below -2%). And so on.
How do you locate the premium/discount on the Sprott funds in real time (or a few mins behind)?
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