Gyroscopic Investing

Why is GTU having such poor performance?

http://madmoneymachine.com/2011/01/04/c ... golf-etfs/

PHYS is hogging all the U.S. limelight.

Does PHYS = holding physical gold?

If so, good one.

Nevermind.

I'm not a gold expert but the only reason I can think about is the fact that GTU is the only closed-end fund while all other securities mentioned in the article are ETFs (UBG is an ETN). GTU's premium/discount tend to fluctuate more than that of an ETF. GTU's premium used to be as high as 6-8%, currently it's just 0.4% - probably because investors are becoming more confident in the recovery.

Interestingly, another closed-end fund omitted in the article - PHYS - showed similar "underperformance" especially in the second half of 2010.

Days like today are great for buying into GTU.  As of yesterday's close, there's a discount to NAV of -1%.  That is to say, you are buying $1 gold for .99.  Compare that to buying a $1400 gold coin for $1428 (2% premium).  After today's selloff, the discount will be even greater.  Investors need to watch the NAV.  It was as high as 15% premium last year.  Central Gold Trust says new offerings are non-dilutive but I've looked at it from various angles and still fail to see how that is the case.  If I were DCAing into the PP right now, I'd focus on GTU for the gold component because of the discount.

I've read a few posts on this, but still don't quite understand...

Can someone explain (in very elementary terms) how GTU's premium to NAV will effect the performance of the fund, and how it effects my portfolio when I rebalance? 

Thanks,
Adam

Adam1226 wrote: I've read a few posts on this, but still don't quite understand...

Can someone explain (in very elementary terms) how GTU's premium to NAV will effect the performance of the fund, and how it effects my portfolio when I rebalance? 

Thanks,
Adam

It will have no effect when it comes time to rebalance.  Just watch your bands and rebalance when they tell you to.

GTU may stray from the price of gold over time, sometimes to the upside and sometimes to the downside.  It's the nature of a thinly traded closed-end fund.  If you are thinking of buying some GTU, now seems like a good time, since there is little or no premium to NAV.

I don't like the additional risk associated with straying from NAV in unpredictable ways, but for those who don't like the big PM ETFs and who don't want to own physical gold, GTU could be perfect.

The potential for capital gains treatment of GTU gains is also very appealing.

Any guess as to how the CAGR would differ using GTU versus GLD?  How about in a tax-deferred account versus a taxable account?

Thanks (Again),
Adam

Adam1226 wrote: Any guess as to how the CAGR would differ using GTU versus GLD?  How about in a tax-deferred account versus a taxable account?

Thanks (Again),
Adam

Over time the returns should be virtually identical (assuming you didn't buy GTU at the top of its premium relative to NAV).

Tax deferred account wouldn't make any difference between the two funds.

In a taxable account, GTU provides the potential opportunity for capital gains treatment, while GLD does not.