GTU Discount

[WildAboutHarry]

GTU (Central Gold Trust of Canada) is a closed-end fund that usually trades at a premium to NAV.  It briefly traded at a discount to NAV this morning, and has been trading at a premium of less than 1% for a couple of days.

[Reub]

This may be a good time to buy some.

[Ad Orientem]

This may be a good time to buy some.

I am not a big fan of closed ended funds for the gold part of the PP. The premium can severely distort your returns in either direction. On the other hand if your looking to lay down a speculative bet on gold this could be a good time to buy. But I would confine closed ended funds to the VP.

[MachineGhost]

GTU (Central Gold Trust of Canada) is a closed-end fund that usually trades at a premium to NAV.  It briefly traded at a discount to NAV this morning, and has been trading at a premium of less than 1% for a couple of days.

Is there a better way than using a manual spreadsheet to monitor the NAV and whether it is overvalued or undervalued relative to the price of gold?

[steve]

GTU (Central Gold Trust of Canada) is a closed-end fund that usually trades at a premium to NAV.  It briefly traded at a discount to NAV this morning, and has been trading at a premium of less than 1% for a couple of days.

Is there a better way than using a manual spreadsheet to monitor the NAV and whether it is overvalued or undervalued relative to the price of gold?

There is no better way then using manual spreadsheet with real time quote from brokerage account, but you could get pretty close with
https://docs.google.com/spreadsheet/ccc ... i40L#gid=0

[steve]

This may be a good time to buy some.

I am not a big fan of closed ended funds for the gold part of the PP. The premium can severely distort your returns in either direction. On the other hand if your looking to lay down a speculative bet on gold this could be a good time to buy. But I would confine closed ended funds to the VP.

I would say that I am a big fan of the closed end fund GTU.
When you buy bullion you usually pay a premium, that premium varies depending on supply and demand and what you buy,  Higher premiums for smaller amounts and higher premiums for certain coins and lower premium for large bars. When you sell the same holds true you have no guarantee that you will recover the premium, dealers buy at a lower price then they sell. If I needed to add more Gold to my PP I would either buy more GTU or real bullion. If I needed to sell the same holds true. Just a quick example if you needed to sell GTU today you would be getting a slight bit over spot gold, if you wanted to sell a gold bar you would get spot from most dealers. GTU also has tax advantages for a taxable investor that can also add to your real after tax return.

[WildAboutHarry]

Is there a better way than using a manual spreadsheet to monitor the NAV and whether it is overvalued or undervalued relative to the price of gold?

I use a program I wrote in Python to get the daily information reported by GTU (holdings in gold, cash, # of units, etc.), get the current gold price, calculate the NAV, and then get the share price to determine the premium/discount.  It was a fun Python exercise, and I'm not really that much of a programmer.

The spreadsheet referenced by steve works as well.

I would say that I am a big fan of the closed end fund GTU.
When you buy bullion you usually pay a premium, that premium varies depending on supply and demand and what you buy,  Higher premiums for smaller amounts and higher premiums for certain coins and lower premium for large bars. When you sell the same holds true you have no guarantee that you will recover the premium, dealers buy at a lower price then they sell. If I needed to add more Gold to my PP I would either buy more GTU or real bullion. If I needed to sell the same holds true. Just a quick example if you needed to sell GTU today you would be getting a slight bit over spot gold, if you wanted to sell a gold bar you would get spot from most dealers. GTU also has tax advantages for a taxable investor that can also add to your real after tax return.

I agree.  In addition, when I was reviewing GLD and GTU I was more impressed with the approach and relative simplicity of the latter's governance.  The premium/discount of the closed-end fund is something to be aware of, but it is somewhat comparable to the premium over spot that is typical on gold purchases.

[MachineGhost]

I'm confused by these stats: http://www.claymoreinvestments.ca/en/cef/fund/svr.un

The value of the silver holdings at the London Fix or the closing spot prices is higher than the total managed assets.  Anyone have an idea what's going on?

[WildAboutHarry]

I don't know, but obviously the ounces of silver held x Ag > reported assets.

Do they lend any of their silver?

This is not encouraging:

Due to the nature of the hedging strategy of the Fund, the Fund relies on the ability of the counterparty to
the hedging transaction to perform its obligations.  In the event that a counterparty fails to complete its obligations,
the Fund bears the risk of loss of the amount expected to be received under the hedging transaction or other
transactions in the event of the default or bankruptcy of a counterparty.

The Fund intends to be fully hedged against the value of the silver bullion held by the Fund. There is no
assurance that the Fund will at all times be fully hedged against the value of the silver bullion held by the Fund or
that the hedging strategy of the Fund will be successful or effective.

[rhymenocerous]

I've always liked GTU.  It seems simpler than an ETF since it just buys gold and puts it in a vault, rather than trying to precisely track the spot price of gold.  Reading over GTU's annual report, I like how it says right at the top of the first page that:

1. "At least 90% of the total net assets of Central GoldTrust [will] be held in physical gold bullion at all times"
2. "Physical gold holdings may not be loaned, pledged, subjected to options or otherwise encumbered in any way"
3. "Gold bullion is stored on an allocated and segregated basis"

IAU does all these things as well, but the part about not loaning the gold is in an IAU FAQ sheet I found on their website.  It seems like a marketing document and I can't actually find anything about it in the prospectus.

I also like the fact that CEF has a long track record, while ETFs are a rather new product.

I'm sure that IAU is fine, but when the premium for GTU dropped to 0.3% the other day, I exchanged IAU for it in my taxable account.

[Ad Orientem]

I've always liked GTU.  It seems simpler than an ETF since it just buys gold and puts it in a vault, rather than trying to precisely track the spot price of gold.  Reading over GTU's annual report, I like how it says right at the top of the first page that:

1. "At least 90% of the total net assets of Central GoldTrust [will] be held in physical gold bullion at all times"
2. "Physical gold holdings may not be loaned, pledged, subjected to options or otherwise encumbered in any way"
3. "Gold bullion is stored on an allocated and segregated basis"

IAU does all these things as well, but the part about not loaning the gold is in an IAU FAQ sheet I found on their website.  It seems like a marketing document and I can't actually find anything about it in the prospectus.

I also like the fact that CEF has a long track record, while ETFs are a rather new product.

I'm sure that IAU is fine, but when the premium for GTU dropped to 0.3% the other day, I exchanged IAU for it in my taxable account.

I did not know that IAU also pledges not to lend/lease out its gold. That is very interesting.

[rhymenocerous]

I've always liked GTU.  It seems simpler than an ETF since it just buys gold and puts it in a vault, rather than trying to precisely track the spot price of gold.  Reading over GTU's annual report, I like how it says right at the top of the first page that:

1. "At least 90% of the total net assets of Central GoldTrust [will] be held in physical gold bullion at all times"
2. "Physical gold holdings may not be loaned, pledged, subjected to options or otherwise encumbered in any way"
3. "Gold bullion is stored on an allocated and segregated basis"

IAU does all these things as well, but the part about not loaning the gold is in an IAU FAQ sheet I found on their website.  It seems like a marketing document and I can't actually find anything about it in the prospectus.

I also like the fact that CEF has a long track record, while ETFs are a rather new product.

I'm sure that IAU is fine, but when the premium for GTU dropped to 0.3% the other day, I exchanged IAU for it in my taxable account.

I did not know that IAU also pledges not to lend/lease out its gold. That is very interesting.

Go here: http://us.ishares.com/product_info/fund ... ew/IAU.htm

Under "Related Resources" on the right had side, click on "iShares Gold Trust FAQ."  On page 3 it discusses lending gold.  The only problem is I don't know how official this document is, or why I can't find anything similar in the prospectus or annual report.

[MachineGhost]

I don't know, but obviously the ounces of silver held x Ag > reported assets.

Do they lend any of their silver?

This is not encouraging:

Due to the nature of the hedging strategy of the Fund, the Fund relies on the ability of the counterparty to
the hedging transaction to perform its obligations.  In the event that a counterparty fails to complete its obligations,
the Fund bears the risk of loss of the amount expected to be received under the hedging transaction or other
transactions in the event of the default or bankruptcy of a counterparty.

The Fund intends to be fully hedged against the value of the silver bullion held by the Fund. There is no
assurance that the Fund will at all times be fully hedged against the value of the silver bullion held by the Fund or
that the hedging strategy of the Fund will be successful or effective.

By my estimate using the bid prices of silver and USDCAD, the fund has borrowed $3.29 million, or -3.21% of the NAV.

What is the advantage to scraping the components and calculating the NAV intraday when using the reported NAV as of the previous close would always be 100% accurate?  I am several pennies off in calculating the NAV myself vs last reported NAV and the discrepancy can be explained by using bid prices.

[WildAboutHarry]

What is the advantage to scraping the components and calculating the NAV intraday when using the reported NAV as of the previous close would always be 100% accurate?  I am several pennies off in calculating the NAV myself vs last reported NAV and the discrepancy can be explained by using bid prices.

The NAV of GTU = ((gold ounces*gold price) + cash)/# of shares (or something like that).  Since the gold price changes intraday the NAV will also change intraday along with the share price.

I've always liked GTU.  It seems simpler than an ETF since it just buys gold and puts it in a vault, rather than trying to precisely track the spot price of gold.

That is what attracted me to GTU over GLD or IAU.  It would be nice if IAU documented its no-lending FAQ statement in the prospectus.

[MachineGhost]

The NAV of GTU = ((gold ounces*gold price) + cash)/# of shares (or something like that).  Since the gold price changes intraday the NAV will also change intraday along with the share price.

Is the working assumption here that the intraday NAV will not acurrately reflect changes in gold, silver and forex rates?  Because I'm not seeing the advantage over waiting for a discount at the officially calculated, end-of-day NAV.

[WildAboutHarry]

MG,

Let's see if I understand your question.

Some of the components on which the NAV is based (ounces of gold held, cash position, units outstanding, etc.) do not change on a regular basis, but they can change on an irregular basis since GTU is allowed to make secondary offerings of shares (they capture high premiums).

The price of gold and thus the NAV does vary from moment to moment during the trading day, as does the market price of the shares.  So you need to recalc NAV during the trading day to obtain the current premium/discount.

So you could use the data on gold holdings, cash, units outstanding, etc. from the prior day's NAV report, but you would still need to recalculate NAV based on the current gold price.

[MachineGhost]

Did I make a mistake? 

Seabridge Gold (SA)
Holdings % US$ Value
Gold Oz 38200000 0.585543925 $59,626,380,000.00
Silver Oz 191000000 0.052077734 $5,303,115,000.00
Copper lb 9888000000 0.333303627 $33,940,560,000.00
Moly lb 213000000 0.029074713 $2,960,700,000.00
Cash Assets 0 0 $0.00
Total $101,830,755,000.00
Shares 43450000
NAV per share $2,343.63
Price $13.13
Premium -$2,330.50
Percent to NAV -99.44%

[WildAboutHarry]

Are those metals in the ground or out of the ground?

[metta2006]

Sorry for such a basic question. According to the http://www.gold-trust.com/asset_value.htm, the discount to NAV is 0.4% as of yesterday. Does NAV stay the same or change daily? How do I calculate how much discount it is if I buy it today? Thanks so much in advance.

[steve]

according to my calculations GTU is trading at a discount (3:28pm wed) about  -1.6% now
spot gold 1561
GTU last trade 57.2

[WildAboutHarry]

Does NAV stay the same or change daily?

It changes throughout the trading day, based on the price of gold.  Look up a few posts to see approximately how it is calculated.  You use the value of gold holdings plus cash holdings divided by the shares outstanding to determine the NAV.

The premium/discount also changes throughout the day depending on 2 factors:  the NAV and the current market price of GTU.

It is really easier than it sounds.

[MachineGhost]

Are those metals in the ground or out of the ground?

I included only the proven and probable reserves that are in the ground and excluded everything else.  The numbers really are that gigantic.

[MachineGhost]

according to my calculations GTU is trading at a discount (3:28pm wed) about  -1.6% now
spot gold 1561
GTU last trade 57.2

I can confirm that.  Incidentally, I also got a pair trade signal to go long GTU and short GLD/IAU.  So the disparity must be significant for this case.

[WildAboutHarry]

I included only the proven and probable reserves that are in the ground and excluded everything else.  The numbers really are that gigantic.

A bird in the hand is worth two in the bush. 

Or in this case, 99 birds in the bush

[MachineGhost]

I included only the proven and probable reserves that are in the ground and excluded everything else.  The numbers really are that gigantic.

A bird in the hand is worth two in the bush. 

Or in this case, 99 birds in the bush

Yes, but how to value such a hoarder?  -99% is such a ridiculous discount to NAV that I don't even think normal gold mining companies would have.

I know for the royalty trusts, SLW and RGLD, the typical ratio is to multiply the EPS by 20 for "fair value".  If I use proven and probable reserves, they are about -50% to -60% undervalued currently.

It's all a bit too speculative for my blood.