# Central Fund of Canada (CEF.A)



## King Tut

What are your thoughts on this stock? anyone?


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## CanadianCapitalist

This is not a stock. It is a Closed-end Fund that holds gold and silver bullion. IMO, it is an excellent way to own precious metals. Note that since it is a CEF, the market price may be different from the NAV.


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## King Tut

CanadianCapitalist said:


> This is not a stock. It is a Closed-end Fund that holds gold and silver bullion. IMO, it is an excellent way to own precious metals. Note that since it is a CEF, the market price may be different from the NAV.


Thanks for the correction. What I understood from their website is that the price may or may not be affected by the price of the precious metals. Not sure how this works.

What is NAV?

I also noticed that the earnings have been increasing since 2003 (except for 2008 where the earnings were negative, not sure why) and assets have been steadily increasing since 2000

Any insights would be appreciated.


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## andrewf

NAV is Net Asset Value. It is the per-share value of the net assets of the fund, in this case, the net value (after fees, expenses and other fund liabilities) of the gold/precious metals (and possibly a tiny bit of cash) held by the fund. The market price can differ from the NAV by significant amounts with close ended funds because these funds don't create or redeem shares as a matter of course to account for inflows and outflows like ETFs do. So if more people want to sell the fund than want to buy, the price will tend to get pushed to less than NAV (a discount to its value). Similarly, if people are piling in to the fund and are willing to pay, the price will rise above the NAV. Closed ended funds are not all that popular compared to ETFs for a variety of reasons. One is this uncertainty of the market price return in relation to the NAV return. There are some tax differences too, I think.

If you can pick up the fund for a discount, it might make sense. As of today, it closed at a 4.2% premium to the value of the funds assets. It's a bit like paying $10.42 for a ten dollar bill. Hopefully when you sell it, someone is willing to pay you $10.42 for it, but you can't count on it.

http://www.centralfund.com/Nav Form.htm


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## andrewf

The reason why the fund changes in value is because it owns primarily gold and silver, and they have changed in value. Look at GLD (for gold) and SLV (for silver) to get an idea. These are US-listed ETFs that hold bullion.


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## King Tut

andrewf said:


> If you can pick up the fund for a discount, it might make sense. As of today, it closed at a 4.2% premium to the value of the funds assets. It's a bit like paying $10.42 for a ten dollar bill. Hopefully when you sell it, someone is willing to pay you $10.42 for it, but you can't count on it.
> 
> http://www.centralfund.com/Nav Form.htm


Thanks Andrew. Why would any one want to pay $10.42 for a $10 bill? does not make any sense?!


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## andrewf

I was being somewhat facetious. With CEF, you're buying their management. Maybe that's worth a premium over the liquidation value of the assets of the fund. I can't say.


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## davext

What would be a reasonable premium/discount to get in at for this closed end fund?


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## zylon

I view CEF.A (CEF amex) as buy and hold;
however, if I was trading, 
I would buy at 4% discount
and sell at 6% premium

historical premium/discount


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## davext

Is there anywhere I can find a chart on the premium/discount that CEF has been trading at?


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## King Tut

How come this fund is not going up, even with gold sky rocketing?? can someone please explain? this does not make any sense?!


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## zylon

It looks fine to me. Are you comparing apples to apples?

In $US over one year:
CEF +65%
Gold +36%
Silver +123%
Chart usd

In $Cdn in same time frame:
CEF.A +50%
Gold +24%
Silver +104%
Chart cdn


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## King Tut

zylon said:


> It looks fine to me. Are you comparing apples to apples?


Thanks, Zylon... I was looking at just the short term.


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## OptsyEagle

zylon said:


> I view CEF.A (CEF amex) as buy and hold;
> however, if I was trading,
> I would buy at 4% discount
> and sell at 6% premium
> 
> historical premium/discount


In most times, with this type of fund, that would be a mistake. This fund trades at a premium because more people then ever want to invest in gold and silver and it is a very easy and convenient and liquid way to do it.

What you will find (at least the last two years has been like this) is when it is going up it tends to trade at a premium and when it is going down it occasionally drops into a discount. To wait to buy it at a discount will most likely have you buying it as it is going out of favour (going down in price).

That is what its history has shown.


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## zylon

Exactly. 

That's how I trade all miners and explorers;
BUY - when they're out of favor (down)
SELL - into strength (on the way up)

I haven't traded CEF.A yet, but may do so if volatility increases.


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## King Tut

The fund is down today. My question is why is it going down if gold is going up? seems counter intuitive to me?!


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## andrewf

Gold was down today. Remember that CEF is priced in CAD, and the gold price has been rising in USD, less spectacularly so when measured in CAD. Also, the fund also holds silver.


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## zylon

*CEF.A and PBU.UN*

So that I don't forget about this again, and perhaps some others will find this useful, here are a few links to compare _*Precious Metals Bullion Trust*_ and _*Central Fund of Canada*_.

PBU.UN 0.8% premium July 28. Holds allocated physical gold, silver, platinum bars.

CEF.A 3.5% premium July 29. Holds allocated physical gold and silver.

live comparison chart

Aug 14 2009 to July 29 2011
PBU.UN .. +71%
CEF.A .... +75%


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## zylon

*CEF.A (53% gold 46% silver) 3.5% premium*

The other day I heard some "expert" say that CEF.A is holding 30% gold, and 70% silver. I don't know where these guys get their information. The gold/silver weighting fluctuates, but doesn't get too far away from 50/50 split.

*Central Fund's* site showing assets and net asset value:
http://www.centralfund.com/Nav Form.htm

I've been using profits from precious metal equities, and buying CEF.A on dips, and when the premium isn't too high. 
Here are some performance stats comparing CEF.A to a few well known companies.












> Investors want to know how to invest in gold or silver bullion and who are wrangling over whether to invest in the metal itself or in gold and silver mining stocks should realize that they are two entirely separate asset classes.
> 
> Gold bullion is money itself, a tangible asset with eternal value. You own it for insurance against a collapsing financial and monetary system. The profit – and there certainly has been some great gains in the past decade – is gravy.
> 
> You own gold and silver mining companies not for their eternal value (they could go bankrupt), not for insulation from the financial system (they are financial assets which are affected by credit conditions and general market volatility), but for their profit potential. You take on more risks in owning gold and silver mining stocks in exchange for what should be a larger upside if business and market conditions prove favorable to them.
> leebellingersindependentliving.blogspot.com


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## zylon

I bought more CEF.A last week.

As of July 6 CEF.A holds:
gold 55.5%
silver 43.4%

and trades at 2.7% premium to net asset value.

http://www.centralfund.com/Nav Form.htm


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## Dopplegangerr

Do you think this is the best way to get exposure to both gold and silver? I own G.TO now and was looking to pick up PAA.TO, but this also looks interesting


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## Dopplegangerr

Zylon, I just reread your little blurb and the end of your last post and I think that already answered my question lol, sorry


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## zylon

The premium has nearly been wrung out of CEF
I'll be looking to buy within the next week or two if price continues to decline.










http://www.cefconnect.com/(X(1)S(m0...aspx?ticker=CEF&AspxAutoDetectCookieSupport=1


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## james4beach

I've held CEF.A since 2007. I think it's a great way to hold precious metals. There's some information in this report:
http://www.greatponzi.com/reports/20090829-CEF.html

Thinking off the top of my head, there's 3 main ways this differs from actually owning gold/silver:
1. CEF owns the metals through a bank, and you're a shareholder in the fund
2. The share price fluctuates around the NAV, so beware the premium/discount
3. The fund incurs expenses so some of your metal "leaks away" while you hold CEF

That report I linked goes into depth on #3. Basically you're losing 0.6% to 0.8% per year of metal content in your shares. If you think of it as an MER, that's pretty low. In fact the analysis was done a couple years ago. In the last couple years the "MER" has been even lower than that. Not a bad deal, I think.


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## james4beach

Here's a tip regarding the premium/discount to NAV. That figure (as they post on the web site) is slightly misleading as the share price closes at 4 pm eastern, whereas the metal prices are taken from the London fix which is a totally different time. If looking at the TSX shares, you also have to consider the USD/CAD rate, and theirs is taken at noon. So you can see these times do not perfectly align... that means the premium or discount is a bit artificial, though it's generally the right ballpark.

The only *proper way* to calculate the premium to NAV is to do it in real-time, during the trading day. This is pretty easy to do with a basic spreadsheet (just mimic what they've done on their NAV page).

Before trading CEF.A, I always pull up my own spreadsheet based on Central Fund's NAV page, and update it with the real-time information as the shares trade. Then I really know what the premium/discount is.


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## james4beach

That premium on CEF is long gone; it's been trading at a steady *discount to NAV*, lately of -10% or more... brutal. This sector is *hated.*

I just bought some CEF.A at 13.18

Admittedly, I'm catching a falling knife (usually dangerous). But I like the discount to NAV, and couldn't resist buying gold/silver which is so thoroughly disliked right now


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## gardner

james4beach said:


> This sector is *hated.*


I look at that as a barometer of the amount of true pessimism in the market. There's people predicting a major meltdown, but in reality most are still not running for the exits. I've had a bit of CEF.A since Apr 2013 when gold first fell pretty hard. It's been nothing but down since. I suspect precious metals will go sideways for a while, until currency inflation starts to catch up with the price. I suppose interest rate changes could trigger something, but folks have been predicting interest rate increases for a while too, and nothing has manifested.


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## james4beach

I've held CEF.A for many, many years and it's a long-term asset I'm happy with. It supplements my physical precious metal holdings. Basically I have no concern with their fundamental holdings so for me it's a matter of buying it low. The last time I bought some was 2008 so this is my first purchase in six years.

I am concerned that commodities/gold seems to be forecasting severe deflation ahead. If this is true, it's wildly divergent from the message coming from US GDP and the S&P 500.


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## Mike59

james4beach said:


> I've held CEF.A for many, many years and it's a long-term asset I'm happy with. It supplements my physical precious metal holdings. Basically I have no concern with their fundamental holdings so for me it's a matter of buying it low. The last time I bought some was 2008 so this is my first purchase in six years.
> 
> I am concerned that commodities/gold seems to be forecasting severe deflation ahead. If this is true, it's wildly divergent from the message coming from US GDP and the S&P 500.


I like Cef.a and bet that you are wise for buying now, especially with the same philosophy serving you well in 2008. I hold a permanent portfolio that is 25% in GTU.UN (a sister fund to cef that holds gold bullion). I stacked all last year with each paycheck and am averaged in around -10% nav. I would've bought cef if I wasn't so heavy in gold already , my stomach cant handle silver anymore...

The trick in my opinion is to rebalance out of the gold and silver during mini rallies (ideally via rebalancing bands so there's no emotion) which might mean when it's up 50-100%. Those smart enough to buy and who held through the 90's and 2000's eventually made out like bandits. You only need to catch one or two major bull markets while "all in" and you're set for life.


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## james4beach

Yes GTU.UN is good too, it's from the same company I think.

My recent CEF.A purchase at 13.18 is looking very lucky at the moment but only time will tell. I liked that -10% discount though


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## james4beach

Shareholders of CEF might want to be aware of this. There is a bit of shareholder activism going on right now. See the press releases:
http://www.centralfund.com/Press Releases.htm

Basically, Sprott and some other shareholders approached Central Fund and complained about the heavy discount to NAV. As I understand it, they want to take over management/administration from the Spicer family (currently the Spicers have full control of the company and act as administrators, collecting the fees). They've had this control since the 1960s, as I understand it.

The shares that trade on the TSX are non-voting shares. So all of us, including Sprott and other institutional holders, cannot vote at meetings.

Central Fund is going to Alberta's courts and asking for their ruling on Sprott's requests. If the court says the requests have merit, then there will be a shareholder meeting on September 18. If the court says the requisition is invalid, then the meeting will be cancelled.

Non-voting class A shareholders don't have any decisionmaking power. This will be very interesting if the courts allow the "requisitions". Would that not change the entire landscape of non-voting shares in Canada?


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## james4beach

I bought more CEF.A last week, at nearly a -10% discount to NAV. As a long term holding I'm very happy buying this on the low side. Here again is the 10 year performance, non-annualized

CEF.A +123% ... double the TSX performance!
XIU +59%

And 15 year performance
CEF.A +190%
XIU +46%

Personally I think the bull market in precious metals is intact, as money printing cannot stop. I expect PMs (and CEF.A) to continue exhibiting good long term performance and yes I think there is a good chance they will continue to out-perform the TSX.


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## fatcat

james4beach said:


> I bought more CEF.A last week, at nearly a -10% discount to NAV. As a long term holding I'm very happy buying this on the low side. Here again is the 10 year performance, non-annualized
> 
> CEF.A +123% ... double the TSX performance!
> XIU +59%
> 
> And 15 year performance
> CEF.A +190%
> XIU +46%
> 
> Personally I think the bull market in precious metals is intact, as money printing cannot stop. I expect PMs (and CEF.A) to continue exhibiting good long term performance and yes I think there is a good chance they will continue to out-perform the TSX.


huh ?

on september 9 2011, it was 25.02
now on september 7, 2015 it is 14.34
you would have to go back to march of 2008 to get it at a price lower than the current price

and not only does it pay you nothing, you have to pay central fund to hold your gold

so you lose capital appreciation, you earn nothing from it and you have to pay in order to own the asset

on what planet can you spin that as a good investment ?


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## james4beach

I call it a good investment because it's a different asset class than stocks (with low correlation)

and, despite your resistance to the numbers, it's _outperformed_ the TSX in both the 10 and 15 year time frames.


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## james4beach

fatcat said:


> you would have to go back to march of 2008 to get it at a price lower than the current price


You just described a great buying opportunity... an asset class that outperforms the TSX (for 15 years!), and you can get it now at a significantly depressed price.

Compare to, say, energy stocks: they're also quite low, but have not outperformed the TSX long-term, even with all those fancy dividends they pay out


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## fatcat

:biggrin: but james you are losing money every day on this investment

honestly :cower: ... i don't have the energy to cherry pick all the currently down investments that have had great runs in the past ... there are too many of them

why not just say "i love gold and want to own gold and i don't care what it costs, i am willing to pay for the privilege of owning gold" ?

why twist yourself into an illogical knot merely to justify that fact that you are a gold bug


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## tkirk62

While I seem to rarely agree with james, nothing he has said here is wrong. CEF did outperform the TSX over 15 and 10 years. Not over 5 years though. Maybe that signals a buying opportunity, maybe it signals something else.


And while it may cost a fee to own it and it doesn't provide any cash flow back, same goes with a house. Sometimes you can sell your house for a profit that represents a good return on investment, sometimes it matches inflation and when you figure in the costs it wasn't worth it. Same goes with any collectible, art, cars, stamps, coins, etc. That in and of itself doesn't preclude it from being a good investment.


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## OptsyEagle

James in your two posts in response to fatcat you described the 10 and 15 year *outperformance* as a sign that this is a good investment. You then took the 2008 to now *underperformance* as a sign that this is a good investment. Are you sure that you are using the numbers to find a good investment or simply finding the investment you have decided that is good, and then finding the numbers to prove it.


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## tkirk62

OptsyEagle said:


> James in your two posts in response to fatcat you described the 10 and 15 year *outperformance* as a sign that this is a good investment. You then took the 2008 to now *underperformance* as a sign that this is a good investment. Are you sure that you are using the numbers to find a good investment or simply finding the investment you have decided that is good, and then finding the numbers to prove it.


That's what I thought when I read what he said. Numbers and stats can be used to confirm whatever we want them to


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## fatcat

OptsyEagle said:


> Are you sure that you are using the numbers to find a good investment or simply finding the investment you have decided that is good, and then finding the numbers to prove it.


let me answer for james so that he doesn't squirm out of this one ... the answer is:B :biggrin::biggrin:

this is james' hobby ... he loves to pick through stale data to find some lovely run of some asset or other to prove his point ... problem, is, anyone can do this and you can do it to infinity ... you can effectively "prove" anything using this method which makes the method meaningless

back-testing investments never accounts for novelty and its the goddamn novelty that is the *****  (i am not oblivious to the value that historical data can present when looking forward, cycles are real and useful but only to a degree ... especially in todays investment universe)



> And while it may cost a fee to own it and it doesn't provide any cash flow back, same goes with a house. Sometimes you can sell your house for a profit that represents a good return on investment, sometimes it matches inflation and when you figure in the costs it wasn't worth it. Same goes with any collectible, art, cars, stamps, coins, etc. That in and of itself doesn't preclude it from being a good investment.


yeah but you gotta live somewhere, you don't have to own gold

as to collectibles, yeah they all present risk, which is why most people put their money in equities and bonds which tend to be more predictable


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## james4beach

Here's the process: you find something that is fundamentally in a bull market (a secular bull market, as they say). Then you look for opportunities to buy more of it, cheap.

Here is an asset that is in a secular bull market which began around 2000. Therefore, it makes sense to stay invested and buy more when the price is depressed.

The funny thing is that if I rephrased all of this using "stocks", you guys would be foaming at the mouth to buy this  Let's try it out, seriously. What would you say to do this? "Dividend stocks have outperformed the broad market, handsomely, for 15 years. They have been the best performer. And now the price has been depressed, falling to the level of a few years ago. Therefore this is a good time to buy."

*My bold prediction*: you guys are going to continue sitting out, and psych yourselves out from participating in what is clearly a long-term bull trend with a series of justifications about how you can't live inside the asset or how you can't eat it, or whatever. People here criticize me a lot for not having much stock exposure. Well guess what, I've made _double_ the profits you've made in stocks. How bad an investor am I?


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## james4beach

I do acknowledge that with CEF.A you pay a fee (some % per year) for the storage & maintenance. That truly is a cost, and not ideal. The purest way to participate in the secular precious metals bull market is to just buy gold/silver bullion.


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## fatcat

james4beach said:


> Here's the process: you find something that is fundamentally in a bull market (a secular bull market, as they say). Then you look for opportunities to buy more of it, cheap.
> 
> Here is an asset that is in a secular bull market which began around 2000. Therefore, it makes sense to stay invested and buy more when the price is depressed.
> 
> The funny thing is that if I rephrased all of this using "stocks", you guys would be foaming at the mouth to buy this  Let's try it out, seriously. What would you say to do this? "Dividend stocks have outperformed the broad market, handsomely, for 15 years. They have been the best performer. And now the price has been depressed, falling to the level of a few years ago. Therefore this is a good time to buy."
> 
> *My bold prediction*: you guys are going to continue sitting out, and psych yourselves out from participating in what is clearly a long-term bull trend with a series of justifications about how you can't live inside the asset or how you can't eat it, or whatever. People here criticize me a lot for not having much stock exposure. Well guess what, I've made _double_ the profits you've made in stocks. How bad an investor am I?


you have officially entered la-la land james 

you are now the king of your own realm :biggrin:

View attachment 5745


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## humble_pie

cat maybe it's a stage the young go through?

do you remember how argo said he wanted to climb into a gigantic vat full of gold coins & just swim & swan his way across the pool in a state of rapture ...

most go for one car or another while the cognoscenti prefer trucks, but there'll always be a one-off or 2 who takes his metal as pure AU


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## james4beach

I'm not fully grasping the opposition to what I'm saying. Help me understand which part you're disagreeing with.

Do you disagree that assets enter (and leave) secular bull markets?

Do you disagree that various things, at one time or another, are in such phases? e.g. coffee, bank stocks, corporate bonds, wheat, blue chip stocks, gold

Do you disagree that one should buy & hold assets that are in a bull market?

Or are you disagreeing with my assertion that precious metals are in a secular bull market? Maybe this is the main disagreement? It's hard for me to see that precious metals _are not in a bull market,_ when they have exhibited such strong long term performance versus other asset classes. Are my eyes deceiving me? Is this thing that outperforms stocks over 15 years, _not_ in a bull market?


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## tkirk62

I am not so convinced that they are in a bull market. They out performed over 15 years, but that out performance was up to 2011. Since then CEF.A and gold has been worse than dead money. You claim that it is a secular bull market, but the bull portion was 11 years and the bear portion has been 4 years so far. At what point will it be enough for you to claim that the bear is winning the fight? 

Outperformance is all about where you set your start and end dates. Your eyes may not be deceiving you, but they may not be looking at what everyone else sees.


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## james4beach

Here's how I identify a secular bull market. It's a bit of fundamental analysis and a bit of technical analysis. The technical part of it is that a secular bull market involves a prolonged period of gains with only mild corrections. Mild means not very steep, and not very sharp.

Based on that here's what I see of *gold in CAD*: the fundamental part is that central banks are in a money-printing mode ever since 2000. The technical part is that since 2000 and today, the price has nearly uniformly gone up. The exception is the current correction in the last few years, which is a -33% decline. You can see that correction here, and notice it's not particularly sharp. It's somewhat mild in severity and volatility.

Now compare to TSX in that period. This has had two periods of very sharp declines, the first -50% decline and then a second -50% decline. Those were severe and highly volatile. This is why stocks are not in a secular bull market.

Gold on the other hand has only had one correction, shallower at -33%, and milder in nature. Because the fundamentals of gold are still intact (central bank money printing), I believe the secular bull market continues.

When would I call it "done"? If the peak-to-trough decline is worse, like -50%, and if the declines are sharper and more volatile. Then I'd be convinced the secular bull market is over.

Switching to stocks for a second. 1982-2000 is what I'd call a secular bull market. The 1987 decline was in fact -35%. The 1990 correction was -22%. And of course it extinguished with the -50% at the end.


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## james4beach

tkirk62 said:


> At what point will it be enough for you to claim that the bear is winning the fight?


I'll summarize my answer to this again. I'd consider the bear to be winning if I saw a large % decline, like -50%, along with very strong selling (high volume, sharp losses). Those are things that indicate that a long term bull market is dead.

For instance, the oil bull market is dead. The copper bull market is dead, too. Same for stocks, which is why I'm saying that stocks are not in a secular bull market. The 1982-2000 stock bull market ended in 2000 and there's no sign it's back, except for brief periods of buying.

But those conditions don't exist in gold (CAD)


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## james4beach

fatcat said:


> :biggrin: but james you are losing money every day on this investment


Nope, in the time frame I've owned the shares I have made an annualized positive return. Second to Berkshire Hathaway, it is my best long term position. I thought all of you guys were the buy & holders? This is about long term performance, not short term fluctuations. If you believe (as I do) that precious metals will continue to perform well, then corrections are an opportunity to buy.

Correct me if I'm wrong, but that would be your logic with stocks -- right?

Oh wait ... YOU only buy & hold stocks, not other assets right? Or do you also buy & hold bonds, and maybe real estate? Hmm so let's see. You believe in the theory of buy & hold when it comes to stocks, bonds, real estate but apparently not in precious metals.


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## fatcat

james4beach said:


> Nope, in the time frame I've owned the shares I have made an annualized positive return. Second to Berkshire Hathaway, it is my best long term position. I thought all of you guys were the buy & holders? This is about long term performance, not short term fluctuations. If you believe (as I do) that precious metals will continue to perform well, then corrections are an opportunity to buy.
> 
> Correct me if I'm wrong, but that would be your logic with stocks -- right?
> 
> Oh wait ... YOU only buy & hold stocks, not other assets right? Or do you also buy & hold bonds, and maybe real estate? Hmm so let's see. You believe in the theory of buy & hold when it comes to stocks, bonds, real estate but apparently not in precious metals.


i believe roughly what mr, buffet believes, that you should buy good companies that make things or provide services that people need at the best price you can and then hold them until you find a good reason to sell them ... 

you should remain as diversified as possible, you should never fall in love with any asset or any company ...

as to gold, it is better described as a form of lunacy than an investment, it fractures peoples ability to think straight

it behaves completely irrationally and is priced by almost completely occult forces ...

sure you can make money in gold but you can make money a lot more predictably in other asset classes

in short, it isn't worth the trouble

and for you to say that gold has been a good investment over the last 7 years versus alternatives like almost anything else is ludicrous

the price has remained flat for 7 straight years, it pays no yield at all and you have to actually pay someone to own it (i have made more money in my pathetic tdw high-interest savings account at .75% than you have in gold over the last *7* years)

your logic is a perfect example of the madness that gold inflicts on reasonable men's minds (and you are a reasonable man james :biggrin


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## james4beach

OK, so your belief is that one of the oldest asset classes known to man, which is a major holding of central banks, sovereign funds and even private banks around the world, is a crazy asset to hold and is subject to lunacy and occult forces.

fatcat, quick! You'd better phone up those sovereign wealth funds and Swiss banks and warn them against those crazy gold investments! lol

I don't see this madness you speak of. I've had excellent returns ever since getting into precious metals, and it's reasonable to expect continued price appreciation with un-ending central bank QE and ZIRP.


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## Eclectic12

Interesting ... I wonder why Yahoo's historical price listing, using the "adjusted for dividends and splits" shows $1.95 gain over seven years.

Then too, the net asset value when compared to the TSX closing price - seems to be saying there's another $1.44 of value, where one can unlock it



Cheers

*PS*

I'm also not sure what effect Sprott's hostile bid to get control of Central GoldTrust and Silver Bullion Trust instead of CEF. Sprott's fund trades at less of a discount.

https://ca.finance.yahoo.com/news/sprotts-hostile-bid-canada-metal-193315462.html


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## james4beach

Are you looking at the CAD one?
http://finance.yahoo.com/q?s=CEF-A.TO


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## fatcat

james4beach said:


> OK, so your belief is that one of the oldest asset classes known to man, which is a major holding of central banks, sovereign funds and even private banks around the world, is a crazy asset to hold and is subject to lunacy and occult forces.
> 
> fatcat, quick! You'd better phone up those sovereign wealth funds and Swiss banks and warn them against those crazy gold investments! lol
> 
> I don't see this madness you speak of. I've had excellent returns ever since getting into precious metals, and it's reasonable to expect continued price appreciation with un-ending central bank QE and ZIRP.


all kinds of institutions with deep pockets own gold because they also own everything else ... they can print money, they own state commodities and state land and have a completely different mandate than a private investor who doesn't have the luxury of time ... you as a private investor are time limited in your opportunity to make money, nations and banks are not

second, it's not that i object to gold ownership, it's that i object to it versus any number of other more reliable and predictable and useful assets like stocks, bonds, real estate and industrial metals and commodities

you can hold all the gold you want but compared to other assets, it's a crappy investment because throughout the last hundred years it has run a topsy-turvy crazy course lurching up and down and even being confiscated by law

gold drives people buggy

james, perhaps we are arguing about nothing, i think owning 1-5% in gold is fine but i wouldn't make it a major part of a portfolio under any condition and that seems to be what you are doing

what percent of your assets is in gold, physical and shares combined ?


----------



## james4beach

OK, we may be arguing about nothing.



> what percent of your assets is in gold, physical and shares combined ?


Including precious metals shares, it all adds up to 6% of net worth. What made you think it's a major part of my portfolio?


----------



## fatcat

james4beach said:


> OK, we may be arguing about nothing.
> 
> 
> 
> Including precious metals shares, it all adds up to 6% of net worth. What made you think it's a major part of my portfolio?


james you talk about cef all the time, you are anti-qe, you are an austerian, an anti-central banker ... everything about you says zero-hedgie and gold buggery

now i have a better idea ... so you have like 6% gold, 3% equities, something in real estate and a LOT in government bonds, correct ?


----------



## HaroldCrump

fatcat said:


> as to gold, it is better described as a form of lunacy than an investment, it fractures peoples ability to think straight
> it behaves completely irrationally and is priced by almost completely occult forces ...


That is not entirely true.
There is a basis for gold pricing, however, because it is a much thinner and circular market compared to stocks, bonds, etc. the basis for pricing is not always easy to identify.

There are three things to take into account related to gold pricing:

1. Gold is priced in USD and therefore nominal price of gold moves inversely to USD.
This is not a perfect correlation and there can be periods of extreme demand such as war.
Supply of gold is, more or less, stable and predictable.
Therefore, all else being equal, price of gold reflects the relative strength/weakness of dollar.
In 2011 dollar was getting weaker therefore gold was up.
Since 2013 dollar has been getting stronger, thus gold getting weaker.

2. At a more granular level, price of gold is determined by real short term treasury yields.
Lower real yield = higher price of gold.
This is because opportunity cost of gold vis-a-vis treasuries.
Both ST treasuries and gold are "flight to quality" assets, therefore, the demand of one vs. the other depends on the ST yields.
Lower the real opportunity cost (yield), higher is the price of gold.
As real yield tends to 0 or even negative, gold price rises.

You can see this clearly in the Euro - as ECB has implemented a NIRP policy, price of gold in Euros has increased significantly.
I believe it just off all time highs (as Euro has bounced off the bottom).

3. Gold market is effectively a circular market
A few gold investors (even relatively rich ones buying a few 10 kg bars) don't move the needle.
The real trading is between central banks, sovereign wealth funds, large hedge funds, etc.
Therefore, gold is both a very thin _and_ a very liquid market.
Thin because real trading is between very large actors and in very high volumes.
Liquid (for retail investors) because you can always buy or sell.

It is _extremely_ unlikely that you want to sell a 10kg bar of gold and you can't find a buyer at or close to the spot price.
Similarly, it is unlikely that you want to buy a 10kg bar of gold and you can't find a seller at or close to the spot price.

Now, if you want to buy 100 tonnes of gold, that's a different matter.
It will take JPM a very long time to work that order.

It is false that gold market is "completely irrational" and "priced by almost completely occult forces".
Sometimes it could be hard to understand daily or hourly price action, but over a week or month in time-frame, the market does work within its characteristics.


----------



## fatcat

HaroldCrump said:


> That is not entirely true.
> There is a basis for gold pricing, however, because it is a much thinner and circular market compared to stocks, bonds, etc. the basis for pricing is not always easy to identify.
> 
> There are three things to take into account related to gold pricing:
> 
> 1. Gold is priced in USD and therefore nominal price of gold moves inversely to USD.
> This is not a perfect correlation and there can be periods of extreme demand such as war.
> Supply of gold is, more or less, stable and predictable.
> Therefore, all else being equal, price of gold reflects the relative strength/weakness of dollar.
> In 2011 dollar was getting weaker therefore gold was up.
> Since 2013 dollar has been getting stronger, thus gold getting weaker.
> 
> 2. At a more granular level, price of gold is determined by real short term treasury yields.
> Lower real yield = higher price of gold.
> This is because opportunity cost of gold vis-a-vis treasuries.
> Both ST treasuries and gold are "flight to quality" assets, therefore, the demand of one vs. the other depends on the ST yields.
> Lower the real opportunity cost (yield), higher is the price of gold.
> As real yield tends to 0 or even negative, gold price rises.
> 
> You can see this clearly in the Euro - as ECB has implemented a NIRP policy, price of gold in Euros has increased significantly.
> I believe it just off all time highs (as Euro has bounced off the bottom).
> 
> 3. Gold market is effectively a circular market
> A few gold investors (even relatively rich ones buying a few 10 kg bars) don't move the needle.
> The real trading is between central banks, sovereign wealth funds, large hedge funds, etc.
> Therefore, gold is both a very thin _and_ a very liquid market.
> Thin because real trading is between very large actors and in very high volumes.
> Liquid (for retail investors) because you can always buy or sell.
> 
> It is _extremely_ unlikely that you want to sell a 10kg bar of gold and you can't find a buyer at or close to the spot price.
> Similarly, it is unlikely that you want to buy a 10kg bar of gold and you can't find a seller at or close to the spot price.
> 
> Now, if you want to buy 100 tonnes of gold, that's a different matter.
> It will take JPM a very long time to work that order.
> 
> It is false that gold market is "completely irrational" and "priced by almost completely occult forces".
> Sometimes it could be hard to understand daily or hourly price action, but over a week or month in time-frame, the market does work within its characteristics.


i get your point about the predictability and order of the market ... when i say "irrational" and "occult" i am thinking about the macro forces that move gold as a safety asset, a refuge and an alternative / counterweight to fiat money

these strike me as almost completely unpredictable vs equities (and the "vs" is the key) which are basically goods and services which can be weighed and measured, demand and supply can be measured and so on

there is very little industrial demand for gold, jewelry demand is somewhat predictable, there is little correlation of gold as an inflation hedge ... mainly gold is a paranoia asset which is hard to measure

yes, over a long enough time frame gold can be seen as predictable and orderly but in the say 10-20 year time frame, you just cannot tell where gold will go vs equities

again i am talking about a choice between the two, equities are not entirely predictable either but i see them as much less occult than gold

but yes, gold trading follows rules


----------



## james4beach

> now i have a better idea ... so you have like 6% gold, 3% equities, something in real estate and a LOT in government bonds, correct


Close. No real estate. As of today, I am


 6% gold/silver including CEF.A
 6% stocks
 23% GICs
 26% cash & savings <-- must reallocate
 39% bonds, mostly govt
Hardly an inflationary positioning. Are you proud? _Twice_ as much stocks as you thought!

I don't see anything wrong with some commodities investment. Gold has moved very much like commodities in general. fatcat, I think you can't really dismiss an entire (and huge) asset class.


----------



## fatcat

james4beach said:


> Close. No real estate. As of today, I am
> 
> 
> 6% gold/silver including CEF.A
> 6% stocks
> 23% GICs
> 26% cash & savings <-- must reallocate
> 39% bonds, mostly govt
> Hardly an inflationary positioning. Are you proud? _Twice_ as much stocks as you thought!
> 
> I don't see anything wrong with some commodities investment. Gold has moved very much like commodities in general. fatcat, I think you can't really dismiss an entire (and huge) asset class.


no, i get the value of commodities as an investment ... i get holding gold though i would say more like 3% would be all i would allocate to it and that would be all in coins which gets to be a pain to have to hold and store etc

james, in fairness, you talk about gold as though it is a major asset like many of the folks who have these pm blogs where they are all in on gold for investment and political reasons ... i assumed you had like 30-40% gold ... you walk and talk like a zero-hedgie :biggrin:

you are in your early thirties and i am a lot more worried about having 62% in guaranteed assets which return at most 2.5% ... you have 40 years of working life left, under what scenario do you see equities in companies that make all the things humans need not continuing to do so profitably ? ... even if they have pullbacks ? ... you like to back test, look at the great dividend champions back 60 years and see how well you would have done if had reinvested dividends, it will stun you

you should be dollar cost averaging your guaranteed into the stock market over say the next 5 years (since you are so risk averse) and you should have 20% bonds and gic's ... cash is another matter, nothing wrong with holding 25% in cash at all times


----------



## HaroldCrump

fatcat said:


> james, in fairness, you talk about gold as though it is a major asset


It is a major asset class - for governments, central banks, sovereign wealth funds, etc.
It makes perfect sense that a central bank should hold gold - it allows them to devalue their currency but preserve the national wealth.

Currency goes down relative to USD = gold goes up.

That is why these reports of China, Russia accumulating gold makes sense (even though some of the reports may be wildly exaggerated).
It is perfectly logical from their standpoint - that is exactly what any responsible central bank governor should do.
Same for sovereign wealth funds.


----------



## fatcat

HaroldCrump said:


> It is a major asset class - for governments, central banks, sovereign wealth funds, etc.
> It makes perfect sense that a central bank should hold gold - it allows them to devalue their currency but preserve the national wealth.
> 
> Currency goes down relative to USD = gold goes up.
> 
> That is why these reports of China, Russia accumulating gold makes sense (even though some of the reports may be wildly exaggerated).
> It is perfectly logical from their standpoint - that is exactly what any responsible central bank governor should do.
> Same for sovereign wealth funds.


i was meaning for james's portfolio ... harold, how much gold do you own ? ... and how do you own if i may ask ?


----------



## Eclectic12

james4beach said:


> Are you looking at the CAD one?


The link provided using same dates, same column and same process results in the same number ... so I'd say it is confirmed as a yes.


Cheers


----------



## HaroldCrump

fatcat said:


> i was meaning for james's portfolio ... harold, how much gold do you own ? ... and how do you own if i may ask ?


Not much...about 3% of total invested capital.
I own in physical form - Canadian maple leaf coins and bars.
No paper gold (ETFs etc.).

It is on target - I plan to keep it between 3% - 5% of invested capital.
My logic is that it is a leveraged play i.e. if the doom & gloom turns out to be true, stocks markets crash 80% like 1929 - 1933 and gold goes to $10,000 / oz. then the 5% allocation will offset the losses in equities.

Until then, it seems to be doing its job perfectly.
As the CAD$ has weakened significantly, gold has offset that weakness

Domestic inflation is running north of 10% (food, energy, groceries, etc.) and gold is reflecting that, give or take.


----------



## fatcat

HaroldCrump said:


> Not much...about 3% of total invested capital.
> I own in physical form - Canadian maple leaf coins and bars.
> No paper gold (ETFs etc.).
> 
> It is on target - I plan to keep it between 3% - 5% of invested capital.
> My logic is that it is a leveraged play i.e. if the doom & gloom turns out to be true, stocks markets crash 80% like 1929 - 1933 and gold goes to $10,000 / oz. then the 5% allocation will offset the losses in equities.
> 
> Until then, it seems to be doing its job perfectly.
> As the CAD$ has weakened significantly, gold has offset that weakness
> 
> Domestic inflation is running north of 10% (food, energy, groceries, etc.) and gold is reflecting that, give or take.


right, that seems like a perfectly sensible allocation and purpose, i have thought exactly the same thing though i have mainly bought coins here and there for beauty more than anything

i would never claim that i don't have gold bug fever like the rest, i always look at it both the miners and the etf's and the coins but i always seem to find a better asset that i like more ... i do get the appeal of the metal


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## james4beach

fatcat said:


> i do get the appeal of the metal


Glad to hear you say that. I think it's a nice asset to protect from a decline in our currency, too.

And I understand your worries about me having too much fixed income. I just don't want to buy stocks, because I think the entire 2009-2015 rally is fueled by stimulus (and is artificial and temporary). I'm not opposed to stocks, but I'm not going to buy them at QE-inflated levels. I can wait, there's no hurry.


----------



## fatcat

james4beach said:


> Glad to hear you say that. I think it's a nice asset to protect from a decline in our currency, too.
> 
> And I understand your worries about me having too much fixed income. I just don't want to buy stocks, because I think the entire 2009-2015 rally is fueled by stimulus (and is artificial and temporary). I'm not opposed to stocks, but I'm not going to buy them at QE-inflated levels. I can wait, there's no hurry.


well yes, you can wait, and perhaps some event will come along that will signal the water is fine come on in ... at your age i would be dca'ing in over a few years and keep some cash and not worry so much about a pullback because over your time horizon there just is no way you shouldn't have some of these great companies in your portfolio, get into a drip program and just keep adding money every month and you will end up with a fine portfolio ... you know the old rule, you should have your age in bonds, i think it might even be too high right now

ps. on gold, no human being who has ever looked at gold hasn't remarked on its beauty, i love a beautiful gold coin

like a lovely st. gaudens double-eagle, wow

View attachment 5993


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## james4beach

I know the feeling. I got a RCM Maple Leaf coin recently and it's breathtaking.

As for buying into the stock market, here's my logic.
#1, I have fundamental reasons to think the stock market is going lower
#2, if the market stays strong, my job will be OK and I'll keep raking in the high income
#3, but if the market declines significantly, my job will also be at risk

I don't think I need stocks. _I am a stock_ -- my fortunes already correlate to the stock/corp bond markets. If I buy now and the market tanks & I lose my income, I'm going to be in a lot of pain. But if I wait and the market keeps going higher, I'm still better off due to income.


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## Synergy

fatcat said:


> ps. on gold, no human being who has ever looked at gold hasn't remarked on its beauty, i love a beautiful gold coin


My PRECIOUS!!


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## james4beach

Some CEF.A updates

It's obviously been doing very well since December. It still shows a discount to NAV, a symptom of poor sentiment in the precious metals space (gold is still unpopular -- good for buyers). Central Fund put out a press release saying they will buy back as much as 5% of all units outstanding throughout 2016, taking advantage of the discount to NAV
http://www.centralfund.com/pressrel_files/2016/CFOC - NCIB Intention PR - 1Feb16.pdf

I'm interested to see what effect that may have.

As much as I like CEF.A, I think my next precious metal purchases will either be physical, or shares of the Royal Canadian Mint's MNT


----------



## james4beach

james4beach said:


> it's been trading at a steady *discount to NAV*, lately of -10% or more... brutal. This sector is *hated.* I just bought some CEF.A at 13.18


I posted that back in December 2014. See? Buy low, buy when hated.

Since that purchase, CEF.A is up 21%. At the same time, the TSX is down around 9%.

That's 30% outperformance in CEF.A vs TSX in that period.


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## donald

Are You serious james?
Why are you playing around with this crap(seriously)
Your scared of buying a canadian bank but on the other hand you want to play in the metals
That seems completely backwards in where you should be heading(whatever your equities % is-i know you love fixed rates)
I view things 100% the opposite in almost everything you advocate lol
Your actually a really dangerous poster for a young guy reading to go anywhere near your advice(you warn people not take anyone's advice)
You have been wrong at least 100% of the time in everything you bring forth in my honest opinion(last couple of years)
Not knocking you but i can't tell if your joking half the time or what
Royal canadian Mint----really man....that is what you see


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## james4beach

Which banks do you like, donald?


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## donald

I know your going to blow holes in it lol
I like JPm-Td-and bns(long term holds-added)
I like them from 3 standpoints
Low multiply/sweet spot in yield(a lot of yield in these almost like tele co's)
And most of these are still in a reasonable 5-6% div increases (in the next 3 yr cycle)
They look a lot better than mcd or jnj at only 2ish % yield with what a 3 % div growth rate(unless they blow the barn door off)
I would sooo much rather sit and collect my 3%(hello fad internet bank selling it)and have the kick of equities 
Maybe i am a idiot

Today felt wired
Like bay street was just sitting
Seems like nobody can guess
The case for bear or bull is split
Obama was smiling and happy at his stump speech making jokes
Trudeau is smiling 
I don't.....i like this
doesnt seem like the market has had this 'vibe' for a while 

You really like metal plays and gold bars????


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## james4beach

My current allocations are:
6% precious metals (metal + CEF.A)
8% stocks
30% cash/savings
55% bonds/GICs

Those there are deflationary bets, not inflationary  If I was crazy about gold, I'd own a lot more than 6%.


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## donald

Your backwards though lol
I know where your going with this
If you were not bullshitting me 
Your
8% equities
30% cash(if you were doing something just for a short time or temporary play into something else,,,,this would be jacked up over 50%)
Don't play me man


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## donald

James:if you seen this how would you interpet it?
33(1.19%) insert green arrow pointing up in a down market
?
?/50(five zero!!)
?/3(47 x difference Fu^K)
?
1000(average)
this number here is 5 times higher here usually

2 more numbers below but not important
would you buy that?
Serious answer?


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## james4beach

You know, *most* people would appreciate it when someone helps them buy at the bottom. My timing could not have been better on CEF.A. I pointed out that when you have something like gold that's in a long term bull market, it's a great idea to buy it at a time it's depressed and out of favour.

I've also pointed out in other threads that gold exposure helps dampen the volatility of your portfolio. Personally it's been saving my butt for the last couple months. Again, _most_ people would appreciate this.

I'll link to it again. Historical performance shows that a portfolio with some gold exposure achieves less volatility without hurting long term returns.
http://canadianmoneyforum.com/showt...iversification?p=951417&viewfull=1#post951417


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## donald

Not trying to be a ***(if your addressing me James)
I don't touch gold
just sounded like you were flat footed last week
looked like you were adjusting changes on the fly by reading your posts
Ie:things could change 
a slide om either can still happen
Your are a ultra defensive investors is all
your under 40 and heavily into fixed investments is all
don't money flows factor into your decision 
seems like a ton of excess on the sidelines(and it's crying to get back in-in smoother weather that is)
If a Market sags 15/20/25 % you would rather play gold vs cad instead of common equties
Thats all i just get why you are So conservative 
You invest like a money mark fund.
I don't get it
Don't you care about inflation 15yrs out


----------



## Eclectic12

Being ... well ... eclectic ... I am playing a bit of both.


Cheers


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## james4beach

Back on 2014-12-24, I wrote:


james4beach said:


> That premium on CEF is long gone; it's been trading at a steady *discount to NAV*, lately of -10% or more... brutal. This sector is *hated.*
> 
> I just bought some CEF.A at 13.18
> 
> Admittedly, I'm catching a falling knife (usually dangerous). But I like the discount to NAV, and couldn't resist buying gold/silver which is so thoroughly disliked right now


I'm going to brag a bit here again. I bought this one almost precisely at the bottom! As it's a long term holding for me, I look for opportunities like those to get it when it's depressed and unpopular. Remember that the premium/discount on CEF.A is a good indicator of general popularity of precious metals.


----------



## dogcom

How about the mining shares I told you they would go up much more when gold does move up. Of course we all know it goes the same way to the downside as we have already gone through it.

The amazing thing I have noticed this year is despite all the short contracts out of thin air the commercials have been pulling out they haven't been able to stop the advance. I have also heard the Chinese are launching their Yuan gold fix today. I have also heard they will not allow countries to exchange their US dollars for the new Yuan.

http://www.cnbc.com/2016/04/19/reut...-to-boost-power-in-global-bullion-market.html

Forum buddies are about to see to see the rigging for themselves. This comes from CNBC so it is as good as gold and London's bogus gold fix game is slowly coming to an end.

We should also note there were three emergency closed door meetings of the Fed from Monday to Wed. last week and they reported to Obama after as well. So I wander what this was all about? There is a lot happening behind the scenes.


----------



## dogcom

By the way here is the chart comparison CEF.A to XGD over the last 6 months when gold was going up.

http://web.tmxmoney.com/charting.php?qm_page=72341&qm_symbol=CEF.A

Overall the Fed has backstopped the stock market and aided it to go higher and has done everything in its power to manipulate gold and silver lower with unlimited paper gold backed by no metal. To say the stock market is the place to be and gold is useless as money is stupid. Instead one should say because of fraud and deceit I have earned money and grown my investments. Those who tried to play in a true market were stupid because they bet against the fraud which is the correct thing to say.

http://nypost.com/2016/04/16/investors-make-golf-off-banks-manipulation-of-metals-market/
Of course many alternative websites have commented on this but the mainstream has been silent but I did find it.

I believe we may be at the end of the fraud game as gold and silver seem to be going up against the endless paper shorts and with the new China exchange they could be slowly losing their market share in this game. Next week will be very telling because with month end contracts nearing and a Fed meeting the fraudsters will need to heavily print unbacked, undeliverable contracts to bring down prices. Probably will need to print a years worth of mine supply next week to get a good price drop.

If one wants to buy CEF.A you may get an entry point at months end, after the beat down if they succeed to really bring down the hammer.


----------



## james4beach

dogcom said:


> How about the mining shares I told you they would go up much more when gold does move up. Of course we all know it goes the same way to the downside as we have already gone through it.


You made a good call on the mining shares. I'm still more comfortable with plain bullion for long term holdings, but clearly the miners are performing great. I did recommend buying NG on 2015-12-10 in this thread but that's a tiny holding for me compared to CEF.A


----------



## dogcom

This is actually good for people who want to take some profit but don't want to be out of the PM market. They could move money from mining shares over to CEF.A and still have their position intact. 

I believe we have just started a new bull market and mining shares will lead this move as we have just seen. They will really need to elevate the ponzi scheme and with the new Shanghai exchange opening, Yuan backing talk in gold, Duesche bank admitting to PM manipulation and the US military hitting the wall against China and Russia it will be much harder for the west to keep the wool over everyones eyes.


----------



## james4beach

Yeah in my experience (and just look at the long term charts for XGD and the US miners indices) ... the miners don't do well in the long term. If you're lucky enough to catch a rally, incredible, but in the longer term they have under-performed bullion.

But man are the miners on fire. My NovaGold position is up 41% since my entry point. I still think that things like CEF.A and MNT are the superior long term holdings.


----------



## dogcom

I would be worried here if I was a forum buddy since gold and silver has not been pounded or manipulated lower this week. Of course it is possible they have changed their playbook since pounding PM's relentlessly since 2011 at the end of Fed meetings, month end and option expiring. 

With secret Fed meetings, banks coming forward that they have indeed manipulated the PM's, class-action lawsuits to follow from Canada over PM manipulated losses and elsewhere and the new Shanghai gold exchange. This could spell the end of our paper system as we know it as it unfolds over months to a few years. End of central bank manipulation could also spell disaster for the stock market. 

James this is the stuff you have eluded to over the years and these games I believe have started to end. It is also funny how no one has noticed the bull push in PM prices and PM stocks especially silver stocks since the start of the year. Silver hasn't even moved a great deal yet the stocks have exploded higher. Silver is the cheapest thing in the world right now when looking at mine extraction to gold and the fact that a lot of above ground silver stock is used up for industrial purposes, where as gold is stored and still around.


----------



## james4beach

This forum looks like it's missed the boat on the gold rally. If you look at the price of gold bullion in CAD, it has been steadily trending upwards for over 2 years now.

There was quite a bit of negativity at times I recommended buying gold when it was *hated* while pointing out that long term performance has been very strong. Disappointing that many of the stock bulls really have blinders on, and can only see bull markets in general equities but apparently not elsewhere.

Luckily gold is still out of favour today, and it's kind of nice to read the unpopularity on CMF because it tells me that it's not too late to buy more.


----------



## zylon

gold, silver, platinum, and palladium priced in CAD
Historically it looks like platinum is the best deal right now.


image hosting


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## dogcom

Your right zylon platinum is also a PM and used commercially like silver.

One thing I heard that makes sense is if the banks a so short gold and silver and can't get out what would they do? Going into mining shares with their leverage to the upside would be a good way to cover their paper losses as the corrupt COMEX comes to an end. This is why we are seeing such a big rally in mining stocks over and above the metal appreciation.

I do think we are now in a rally you don't sell as the wheels are now coming off the fiat cart.


----------



## james4beach

CEF.A shareholders might be interested to know: earlier this year, Central Fund announced a plan to repurchase and cancel up to 12.7 million Class A shares. This, I think, was in response to criticism that the discount to NAV is quite steep. The company points out that the shares are cheap because they trade below net asset value. I agree; I've been buying at a discount.

They appeared to have followed through (mildly). In August there were 254.4 million shares outstanding. Today there are 253.9 million, a decrease of half a million shares. But I'm just reverse engineering this info. I'm also going to guess that they purchased the shares on *October 4th/5th*, due to the elevated volume and steep discount opportunity. Around those days the discount eased which is the opposite of what one would expect during such heavy selling (see sym !CEFPREM on stockcharts). I think that's a giveaway that the company was actively repurchasing shares. If so, bravo to them: great trading.


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## mordko

Yes, that should have been an easy kill for them.


----------



## mordko

But the discount isn't really that deep for a closed fund... Not sure I understand the concern.


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## james4beach

mordo there are two aspects of concern. One is that earlier, last year I think, the discount was steeper. I loaded up some shares at 10% discount and I think it got as low as 12%.

The second cause for concern is Sprott. This competitor has been arguing that CEF's discount is a reflection of poor management. This is untrue; the premium exactly correlates with market strength and share price, which you can see by plotting !CEFPREM versus share price. But Sprott has been using this false argument to complain about CEF management and their execution.

Sprott also forced a takeover of GTU, which is run by the same people as CEF. Sprott got emboldened by their huge increase in assets under management, which they rolled into PHYS.

Last year, Sprott launched a series of actions against Central Fund. They tried to push the board to change their management/administrator and continually cited this discount issue. This whole adventure cost CEF (and us shareholders) money; CEF spent money on lawyers, and Alberta courts ruled that Sprott has no ability to influence voting ... these are "non-voting" shares after all. The courts have been clear: external parties like Sprott, class A shareholders, can't change management.

I call all of this "harassment" from Sprott. They know that class A non voting shares don't get a say in management. But it incurred costs for CEF, drove up the expense ratio, and created free marketing and attention for Sprott who is trying to point out that their fund doesn't carry such large premium/discounts.

So that's the whole story as I know it. CEF announced the share buybacks after the Sprott harassment.


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## james4beach

I emailed the administrator and asked if they have been buying shares. They responded:



> Central Fund has been buying back some of its shares since March 1, 2016 hoping to decrease the discount between the NAV and the Market Price. The release states that a total of 5% of the shares may be bought back until February of 2017.


Checking their stats again, I see that the number of outstanding shares continues to decline while their cash declines. They are definitely using cash on hand to buy and cancel their shares at discounted price. The discount to NAV is now -2%. At the start of this year the discount was -12%.

And it's boosting performance. YTD the theoretical price change based on gold & silver prices would be +24% (using USD prices). The CEF performance is +35% (in USD), dramatically outperforming the price change in their metal assets YTD.

Bravo, Central Fund of Canada!


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## mordko

So, they are basically subsidizing investors? 

Anyway, worked out for me... I have just sold all my current holdings


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## james4beach

I guess it is subsidizing investors. It also bolsters confidence.

This morning I bought quite a few CEF.A shares at around 3% discount to NAV.


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## james4beach

Sprott is coming after Central Fund of Canada again. This time with a hostile takeover attempt on CEF

http://www.cbc.ca/news/canada/calgary/sprott-takeover-bid-central-fund-canada-1.4015314

I'm so irritated with Sprott. In my opinion they keep doing this for the marketing attention toward their own fund. The Alberta courts already ruled that Sprott (who previously did this via a numbered corporation) has no basis, *since CEF shares are non-voting shares*. As the CBC article points out, there is no precedent for non voting shares to suddenly gain voting rights like this.

Worse, every time Sprott does this, it dives up the MER on Central Fund of Canada because of the legal costs. This is why I think Sprott is doing this for malicious purposes. I'm going to phone Sprott and express my displeasure with what they're doing.

Sprott pretends that their issue is the discount to NAV on CEF, but they're lying about that too. It's very well known in precious metals circles that CEF (which has been TSX listed for 50 years by the way) has a premium/discount that mirrors the sentiment in precious metals at the time. CEF has also treated as high as a 20% premium to NAV. The premium occurs when metals are hot; the discount occurs in years like this where metals are out of favour.

Reminder about the last time this happened. The Alberta courts had ruled in favour of CEF and are going to award court costs to CEF as well. This is why I think it's really just _harassment_ of the trust and attempt at free P.R. And possibly an attempt to drive up CEF's MER, which already is significantly lower than Sprott's .... Sprott is not able to manage their precious metals funds at as low an MER as CEF.

I also hope this time CEF counter sues for larger damages. I will make this desire known when I phone Sprott.

CEF has over 50 year history managing their gold & silver fund and is far more reliable than Sprott. They are also not desperate for media attention, nor do they follow aggressive practices like Sprott does.


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## james4beach

A reminder to anyone who might be tempted by what Sprott is doing ... that the expense ratio on Sprott's PHYS has always been higher. If you let Sprott convert your CEF shares to their structure, your expense ratio is going to go way up -- and your performance will go down.

Sprott also under-states the expense ratio on their web site. If you go through the audited financial statements you will see that the total expenses with PHYS are very high.

Sprott is also threatening to dismantle one of the oldest and best managed holding companies in Canada. CEF has been around since the 1960s ! There is no other precious metals fund like this in the world. It's been around a lot longer than GLD.

Sprott are Wall Street style, aggressive guys. They want to steal these assets away from the Spicer family (who controls CEF). Our family owns a large number of CEF.A shares and will, of course, vote 'no' ... if it's even possible to do such a thing with non-voting shares... which I doubt. Sprott is being very dishonest about all of this. The courts already told them to lay off this behaviour.


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## agent99

Reading through this thread just makes me thankful that I never did buy CEF when I first looked at it some years ago. 

If someone wants to own gold or silver, why not buy the metal directly? With CEF and other such funds, you are leaving yourself open to mismanagement or other shenanigans that these fund companies (or their competitors, as in this case) get up to.

Same is true for some other ETFs or CEFs funds. For example, a fund might own the 5 big banks. Should be safe as a house? But not if the fund is mismanaged. For example pays out more than the underlying stocks yield, in an attempt to look more attractive than their competitors. Unless you have very little to invest, better to buy the stocks directly rather than a fund that holds them.


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## james4beach

I am a happy long term holder, but yes - absolutely! There is nothing better than physical ownership.

And it's so easy. In downtown Toronto, just walk down to either the Scotia tower or TD banking center, and buy yourself some bars or coins at virtually the spot price. So easy! I will be buying more bullion this year.


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## james4beach

Central Fund has put out a press release about this harassment from Sprott. 
http://www.centralfund.com/pressrel_files/2017/CFOC - Press release - March 9 2017.pdf

Quoting the CEO: “Today’s announcement is the latest in a series of actions and applications to the Alberta Court by Sprott and its affiliates which have the ultimate purpose of converting Central Fund and/or its assets to a Sprott managed fund. Sprott’s previous applications have each been denied by the Court and today’s Sprott announcement is a continuation of its campaign of corporate harassment and intimidation against the Corporation and its ongoing disparagement of the Board and the administrator of Central Fund in an attempt to gain control of the Corporation and its assets. This latest application to the Court is an attempt to utilize the arrangement provisions of the Alberta corporate legislation in a manner contrary to the accepted practice for approval of Plans of Arrangement, the basis of which is generally a consensual agreement between willing parties. This is nothing more than a hostile attempt to take-over management of Central Fund and its property.”

I haven't found time yet between my travels, but I am going to phone Sprott and express my displeasure with their ugly behaviour. I've really lost all respect for Sprott Asset Management. Maybe they are resorting to these tactics because their business is failing?


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## mordko

6% under NAV is a large gap. When the price of assets can be evaluated so easily and so accurately, such a gap is bound to generate takeover interest. 6% on a billion is well worth having.


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## james4beach

That's true, but you can't takeover a stock whose shares are non-voting. This is a closed end fund, the premium/discount situation is always there. Over their many decades trading on the TSX, the shares have frequently been at a big premium or discount. When bullion is strong, there's a premium. When bullion is weak, there's a discount.

Sprott's press releases and court action is not a genuine takeover interest. It can't be, because (unless they're illiterate) they know that non voting shares can't vote to take over.

Instead what they are doing is using this to market their own competing fund, and to drive up Central Fund's legal costs. Currently, Sprott's management fees are 30% to 40% higher than Central Fund's. By harassing Central Fund and forcing them to pay legal expenses, my hypothesis is that Sprott is trying to narrow that fee gap. Simultaneously, it generates press for Sprott and markets their fund.

Previously Sprott succeeded in driving up Central Fund's MER by about 5 basis points. With more aggressive action, perhaps they can drive it up by 10 basis points. (This really would help narrow the gap difference with their fund, which currently has much higher MER)

They can't actually win in court action like this. My hope is that it back fires, and Central Fund countersues Sprott for the harassment. If I was a Sprott shareholder, I would be concerned that the company is engaging in such crazy shenanigans and is taking on legal liability while doing so.

Basically Sprott is being dishonest and using dirty tricks for marketing purposes. They are going to try to get information about their fund sent out to CEF shareholders... basically marketing to their competitor's clients. They are also lying and saying that the discount is due to poor management by CEF, which is not true: the premium/discount precisely follows popular sentiment in precious metals.


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## doctrine

The Globe seems to think the court may approve the vote or at least is seriously considering it. At the very least, from Sprott's perspective, a couple hundred k of legal costs could be worth the potential $6M+ of annual fees at stake - even if they only had a 20-30% chance of winning, it makes sense to try. While the mgt fees are higher at Sprott, it seems like their funds are more liquid and thus trade at less of a discount than CEF.A, which the Globe claims are more difficult to redeem for cash which is a big driver of the NAV discount (perhaps not all of it but it makes sense to me that it would drive some of it)

http://www.theglobeandmail.com/repo...keover-of-rival-bullion-fund/article34237347/


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## james4beach

CEF has always had premiums and discounts to NAV. This isn't new, it's been over 30 years of premiums/discounts. Besides, I like the discount. It's giving me a chance to accumulate shares during this weak period in precious metals. When gold is strong again, it will trade at a premium. How is this a catastrophe? It rewards long term holders and even gets them the opportunity to buy more during unpopular periods.

The Sprott funds are not more liquid, neither in the US or Canada.

CEF on US exchange: avg volume 991,000 ... 30% higher than Sprott
PHYS on US exchange: avg volume 762,000

*CEF.A on TSX: avg volume 83,000 ... 450% higher than Sprott
PHY.U on TSX: avg volume 15,000
*
The only thing going for the Sprott funds is that the shares trade closer to NAV. That's the only advantage I can see. In all other respects, the Sprott funds are inferior to Central Fund of Canada:

(a) Sprott's has dramatically less volume
(b) Sprott's has only a few years track record while Central Fund has been around 50 years
(c) Sprott's fees are higher

For me the biggest difference is the established history. The Spicer family has proved solid stewardship for 50 years... this is tremendous.

Sprott's bullion funds are focused on Americans, plain and simple. Sprott markets to Americans and focuses on American investors. They have practically no volume in Canada. If we lose the Central Fund of Canada, we're going to lose the only liquid bullion fund on the TSX. The only remaining option will be MNT from the Royal Canadian Mint.


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## james4beach

Here's the 2 year chart of Central Fund of Canada's premium/discount
http://stockcharts.com/h-sc/ui?s=!CEFPREM&p=D&yr=2&mn=0&dy=0&id=p28909922562

The current discount (after Sprott's announcement) is actually worse than in the preceding few months.

The market does not believe that Sprott's acquisition attempt will succeed. This is a non-issue, other than the expenses it will cause CEF (and shareholders like me) to incur.


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## mordko

Wow. A drop from -1% to -9% just after the election. I had a small amount and sold it all just before the election- figured that I already have plenty of exposure through XIC.


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## james4beach

Yup precious metals really took it on the chin. But my approach (as per couch potato investing) is to maintain my asset exposure, the same way I would hold my stock exposure through a decline.

And upon rebalance, buy more of the depressed asset. Which is why I bought additional CEF.A and MNT at the end of last year. I would do the same for stocks.


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## mordko

Couch Potato does not have gold as a separate asset class. Some similar strategies do, e.g. permanent and all weather portfolios.

Yes, once you selected a strategy, you should stick to it. I was toying with the idea of having some gold as my circumstances changed, so I was testing CEF.A. I made an ok gain in 2016 purely through luck. In the end I decided against it because: 

- long term growth is guaranteed to be zero.
- by being overweight in Canada, I already have plenty of exposure to gold.

One of the main reasons to hold gold is to reduce volatility. A product which goes from -1% to NAV to -9% to NAV in a couple of days creates volatility regardless of the performance of the underlying asset class. It could be appropriate as a tactical play when the fund is severely underpriced but I would question it's suitability for a permanent portfolio.


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## Argonaut

Holding gold is better than holding gold miners though, which are some of the worst stocks of all time. I suppose with drinking the Couch Potato Koolaid though, one is forced to willingly hold the losers in VCN or XIC or whatever.

Read that Schwab white paper I posted for some more thoughts on gold in a portfolio. I agree that CEF.A is a bit of a strange fund and would hold GLD instead.


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## mordko

There will be scenarios when the bullion outperforms miners. And the other way around. Long term bullion has a guaranteed return of zero, we have century's worth of pricing data to prove it. Mining companies have a positive expected return. Sometimes whole industries come to nothing. 

Either way, I am not in the business of picking industries. And the reason one holds "losers" is because they are not known in advance.


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## james4beach

mordko said:


> One of the main reasons to hold gold is to reduce volatility. *A product which goes from -1% to NAV to -9% to NAV in a couple of days creates volatility regardless of the performance of the underlying asset class*. It could be appropriate as a tactical play when the fund is severely underpriced but I would question it's suitability for a permanent portfolio.


This is a very good point! Thanks for describing this well.

Yes, I agree that CEF.A does not look appropriate for strategies like the permanent portfolio. I have started building a position in MNT for this reason and I intend to add to my physical gold holdings as well.


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## Argonaut

mordko said:


> Long term bullion has a guaranteed return of zero, we have century's worth of pricing data to prove it.


That is nothing but a bold-faced lie. The only relevant pricing data is after the Nixon shock. Since then, the annualized return of gold is 7.627%, enough to satisfy the Rule of 72. Adjusting for CPI, the annualized return is 3.456%, for a total real return of 371% since 1971.

This is not including the benefits of holding gold by way of its low correlation with other asset classes. And you have to think about it logically. It is a valuable, scarce, finite resource. Acquiring more of it is better. And mining companies will eventually run out of it, meaning their cash flow is not sustainable.


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## mordko

Argonaut said:


> That is nothing but a bold-faced lie.


You are entitled to your opinion (wrong as it may be) but the way you are expressing it speaks volume about you. 

Gold has been traded and the pricing has been known for many centuries. Government policies and rules change all the time, but the gold still returns zero over sufficiently long periods of time. There is no reason for bullion to return profit - same for any commodity. Gold responds to government policies and public sentiments which cancel each other out over sufficiently long periods.

Picking 1971 as a starting point is indeed helpful. Gold did OK since then. Meanwhile the precious metal index returned 12.81% on an annualized basis between 1969 (when the Morningstar data began) and 1996 and more since 1996 (as the price of gold jumped). That beats S&P500. 

Back in the real world, people who understand the issues better than either of us state that:



> Even in this era of fiat currency, the real return of gold is near zero. Consider that in 1926 the price of gold was $20.67 per ounce, and is now $380. It's return in the intervening 70 years has been 4.2% per annum -- exactly 1% higher than inflation.


William Bernstein, http://www.efficientfrontier.com/ef/197/preci197.htm

And if one picks several centuries worth of data (which exist for gold) then the real return will be even closer to zero.


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## mordko

Regardless of zero return, I do think that holding a small amount of gold makes sense for someone focused on the preservation of his portfolio. It is a good hedge against certain types of economic scenarios. This logic changes for someone who is overweight in the overall Canadian market, which most Canadians should be.


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## Argonaut

I think you're living in an alternate reality mordko. Try to tell someone who has invested in gold for the last 45 years that their real return has been zero, and see if they agree with you. How many people here have been investing since before 1971 anyways? During the gold standard era, of course the pricing would be relatively flat. The gold standard is not coming back, therefore that price history is no longer relevant. And nobody has an investment horizon of centuries anyways. But if you think about it, gold is one of the only traditional investments that would have retained its value over centuries. The cryogenically-frozen 17th Century Dutchman who awoke today wouldn't find his VOC shares to be very redeemable. But his stash of gold on the other hand..


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## mordko

Yes, if you want to retain value then gold is exactly what you need. 

As for time horizon... Great performance over 10 or 20 years is unlikely to continue over the next 10 or 20 years. In fact, an asset that over-performed over 10 or 20 years is likely to underperform over the next 10 or 20 years. That's where longer term datasets are more helpful because they tell us something about probabilities of future returns. 

Basically, we know nothing about the future expect for returns expected over very, very long time horizons based on datasets generated over equally long periods of time. The longer the time period, the closer returns will be to what's expected but over the next 10 years they will deviate significantly.

Next 10 years is a crapshoot, which is where maximum diversification comes in handy.


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## james4beach

I think as a starting point, it's safe to say that gold can retain value and purchasing power -- which mordko agrees with.

But the 1960s-70s and start of free floating currencies is an important milestone. Gold's performance in this modern free-floating currency era is, I think, the most relevant indicator of expected future returns. *This is 46 years.*

This could change if there is a radical change to currencies but there's nothing like that on the horizon. I agree with Argonaut that the only relevant pricing data is from the end of Bretton Woods and start of free floating currencies.

Plus, it gives you the benefits of low correlation, portfolio diversification leading to reduction of volatility, and global diversification.


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## mordko

It comes to fundamentals. A company which generates profit creates value. Lending creates profit too via the interest mechanism. There is no mechanism for a sitting block of gold to generate value. It's price is entirely dependent on the psychological value society places on gold. That has remained constant in real terms for an awefully long time. There is absolutely no reason why floating currencies should enhance the value of gold in real terms. Yes, inflation created a rush for gold. Long term the effect, if anything, could be the opposite.


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## james4beach

mordko said:


> There is no mechanism for a sitting block of gold to generate value. It's price is entirely dependent on the psychological value society places on gold.


But as you mentioned, that psychological value (which is based on scarcity) has been in humans for about 5,000 years. The treatment of gold as a currency also continues today. Remember, central banks include gold in their currency stashes. It's not a speculative instrument for central banks: it's FX.

Another thing you're glossing over is that stock valuation is also very much based on "psychological value". While it's true that there are fundamental earnings underlying them, stocks spend the majority of their time away from fair value. This is described quite well in this Grantham letter and review of Shiller's work. Buffett has also talked about this in his reports; the wild irrationality of stock valuation.

Stocks are notoriously volatile and performances are the product of psychology. Just look at the CAPE valuation history. Look at that multiple go down from 24x to 5x, then insanely shoot up to 44x, etc. It's an absolute roller coaster ride and highly disconnected from earnings.

Both gold & stocks move according to psychology. For example, if stock multiples decline from current 29x back down to 5x over the next 20 years, you're going to end up with horrible performance in the stock market -- despite the fact that corps keep steadily growing their earnings.


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## mordko

It is true that the prices of gold, stocks and bonds have a psychological component. The difference is that for gold that's it. It adds no value over time. Yes, states and individuals will hoard and then sell gold and the value will go up and down. There is nothing else to it, no profit and no interest. 

In fact, any commodity is similar to Gold in this respect. Wheat, oil, iron, platinum, silver... Owning them means real long term return of zero. Unlike gold these have intrinsic value though because they have uses. Their constant long term real value is assured by supply changes which respond to demand.


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## james4beach

My counter to that is that, since stocks can easily go 20 to 30 years with valuation that's disjointed from fundamentals, we can't pretend that stock fundamentals are of too much use to the average investor. For many investors, the psychological or irrational movements of stocks completely dominates the returns they get -- not economic or corporate fundamentals.


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## mordko

Right. I have nothing against permanent portfolio, all weather portfolio, you name it. While the probability of getting a positive out of gold is lower, doesn't mean it won't beat stocks over 10 years. And there is real value in reducing volatility so gold can be helpful as an asset class which often has low correlation to stocks and bonds.


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## zylon

Added to my CEF.A holding.

From a strictly "buy low" perspective, buying CAD would be the thing to do; but I'm not all that optimistic about Canada's near term prospects.



Code:


                   3-year performance:
gold priced in CAD   +15%
silver priced in CAD  -4%
                CEF.A +5%
                 CAD -18% (that's just plain stinky)



http://stockcharts.com/h-sc/ui?s=$GOLD:$CAD&p=W&yr=3&mn=0&dy=0&id=p27240305801


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## james4beach

I've tried in the past, but I can't time gold or the CAD, so I'm just keeping a steady % allocation to precious metals  I'm aiming for 25% exposure, currently a bit shy of that at 22% of net worth.

I use: CEF.A and MNT (trades in Canada) and IAU (trades in US)


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## james4beach

Interesting days for Central Fund of Canada. Sprott (their competitor) is going to court to attempt to seize the $4 billion in assets of CEF. The hostile takeover attempt is under way, if Alberta allows it:
http://www.mondaq.com/canada/x/6280...rrangement+Application+to+be+Heard+in+Alberta

It's a very novel attempt. The novelty is that CEF.A shares are *non-voting shares*, and Sprott wants the non-voting shares to vote on whether to transfer the assets out of CEF and into Sprott. According to the lawyers who wrote this article, an attempt like this would not be possible in Ontario but it may be possible in Alberta.

For my part, I phoned Sprott investor relations and told them that I think these hostile actions reflect badly on them, show that they are mean-spirited players, and that I would never trust Sprott with my assets.


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## doctrine

Looks like Sprott's hostile action has turned into a friendly offer. 

https://beta.theglobeandmail.com/re...lands-central-fund-of-canada/article36462938/


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## gardner

The CEF press release is here: http://www.centralfund.com/pressrel...rangement Press Release Final for 2Oct17.pdf

Sizable bump yesterday. I am considering getting out. PMs have been a dog for me as long as I've been holding.


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## james4beach

doctrine said:


> Looks like Sprott's hostile action has turned into a friendly offer.
> 
> https://beta.theglobeandmail.com/re...lands-central-fund-of-canada/article36462938/


That content is behind a paywall so I can't read it.

I don't understand why the Central Fund board has decided to cooperate with Sprott. As I've said before, based on their history, I don't trust Sprott to manage my assets. They will also jack up the expense ratio.

Does anyone understand why CEF's board is siding with Sprott? Is this an issue of the Spicer family having a difference of opinion with the Board? Would love to better understand what happened here.

I will be voting "no" on the asset transfer and will also advise family to vote no, for about 10K shares that we have between us.

My message to other CEF.A shareholders is -- if you agree to this takeover, your fees will be going up. CEF has had rock bottom fees for its lifetime, and this is a very long history. Sprott's fees have always been higher. If you are a long term investor through CEF.A, it's in your best interest to vote "no" and keep the current administration team, who have an incredibly good, multi decade track record. *The argument that the discount to NAV is due to poor administration is a lie*. Over the history of CEF, as you can see from the data yourself, the premium/discount is correlated with whether we're in a bull or bear market for precious metals. The current discount to NAV is what CEF has always shown during weak phases of precious metals. For long term investors, what's far more important are the annual fees, and the ability of the management team to effectively time good prices for gold & silver purchases. You will be throwing all of this away if you vote "yes" to go with Sprott.


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## james4beach

Just to be clear, I still think this is an example of outright corporate bullying with Sprott as the aggressor. Even in their press release, Central Fund points out that one reason for cooperation is to stop the litigation costs associated with Sprott's actions.

In other words, perhaps it has become in the best interest of shareholders to allow Sprott to take the assets, _but it's a consequence of Sprott's aggressive bullying which have caused CEF's legal expenses to go up, notably increasing the MER of the fund._

Again -- I will never do business with Sprott. If my shares convert to a Sprott fund, I will dump the shares and buy MNT (Royal Canadian Mint) or IAU (the US traded iShares) instead.


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## lonewolf :)

James I really like Gold money as can make purchases on bank card, low fees can store gold in different countries. Another kid on the block that might be of interest is gold annuities offered only by Swiss insurance companies from my understanding.


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## fatcat

lonewolf :) said:


> James I really like Gold money as can make purchases on bank card, low fees can store gold in different countries. Another kid on the block that might be of interest is gold annuities offered only by Swiss insurance companies from my understanding.


wolfie, given that gold is both an inflation protector, diversifying asset ... and ... catastrophe insurance, doesn’t it bother you having your gold domiciled halfway around the world in some vault ? ... it would me, a bad enough catastrophe and the vault just stops phoning home ... it could happen to deposits here in canada but they would know at least that some of us are going to come knocking on the door ..


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## james4beach

I'm with fatcat. Call me crazy, but I really prefer investing in a jurisdiction where I can actually sue the responsible people. Or I can visit them in person.

Even better -- hold physical gold.


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## lonewolf :)

fatcat said:


> wolfie, given that gold is both an inflation protector, diversifying asset ... and ... catastrophe insurance, doesn’t it bother you having your gold domiciled halfway around the world in some vault ? ... it would me, a bad enough catastrophe and the vault just stops phoning home ... it could happen to deposits here in canada but they would know at least that some of us are going to come knocking on the door ..


 For physical & financial safety should really have more then one passport. In time of crisis passports will be harder to get. All of ones wealth should not be stored in one country as well. With gold money can store gold around the world 13 different vaults including Royal Canadian mint & Brinks Toronto for Canada. Though if possible should not hold all gold with same company.

Swiss insurance companies are not insured by Swiss Government which helps make them strong investors invest because insurance companies must not take high risk for investors to invest.


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## james4beach

_Though I'm a moderator of the site, the following are entirely my own individual beliefs. I don't run this site and I have no connection with the company that does. I also have no connection with Central Fund, Central Group, or the Spicer family. I just own shares of CEF.A and am concerned about my best interest._

Documents related to the Central Fund of Canada vote to dissolve the fund are now available on SEDAR:
http://sedar.com/DisplayProfile.do?lang=EN&issuerType=03&issuerNo=00000832

I haven't yet gone through the 242 page document but from what I've read so far, this looks like Central Fund and the Spicer family have been coerced into this action under legal threat. In this contract between Spicers & Sprott, Section 4.12 lays out the agreement that Sprott will discontinue legal proceedings filed in Alberta, not make any future claims or encourage others to make future legal claims.

Under the threats of ongoing legal harassment from Sprott, I think the Spicers have decided to enter this deal with Sprott. To paraphrase the deal: "OK, we will allow shareholders to vote to dissolve the fund. However by allowing this vote, you agree to stop this and future legal actions, and we will cap total possible legal liabilities of both parties to each other (Sprott vs Spicers) in a truce".

^ That's my current interpretation, but it may change once I read all the documentation.

I think what adds to Central Fund / CGAL / Spicers' desperation is that the legal costs have worn down their cash reserves. They are currently at a negative $4 million cash balance, so are now using credit to pay for cash. Their fund has plenty of liquid reserves, but still, there is a cashflow difficulty here. I think Sprott is taking advantage of the situation.

I still interpret Sprott's actions as extremely aggressive.


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## james4beach

You now have just 2 weeks to vote.

There is now a vote to terminate Central Fund of Canada's current management of 50 years and move the assets to Sprott. If you vote FOR the Arrangement Resolution, you are voting in favour of closing down the fund and transferring assets to Sprott. If you vote AGAINST, you're voting for keeping the current management and fund structure.

The vote will be happening at the meeting on November 30. Here is some info on CEF's web site
http://www.centralfund.com/2017 Special Meeting.htm
http://www.centralfund.com/Press Releases.htm

TD Direct Investing told me: with this kind of corporate action, you need to retrieve a proxy #. Phone the brokerage and ask to speak to Custodial Operations. You take this proxy # to ProxyVote.com -- https://central.proxyvote.com/ -- and use the number given by the brokerage to cast your vote online.

Note that this is a very unusual situation that has probably set a precedent in Canada. 66.7% of Class A (non-voting) shareholders must vote in favour, for this to happen.

The default vote is FOR the arrangement, so if you do nothing, you are voting for the termination of CEF. This has occurred because of Sprott's unrelenting lawsuits against current CEF management. In my opinion, a big part of why this vote is occurring is to put a stop to the cash drain caused by Sprott.

Personally, I am voting AGAINST as I trust the 50+ year management more than Sprott, and I really hate how they harassed CEF and used dirty legal tactics to, essentially, steal the assets away from CEF.


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## doctrine

http://www.stockhouse.com/news/pres...lders-overwhelmingly-approve-arrangement-with


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## james4beach

Once the switch to Sprott completes, I will be selling all my shares. After pulling this stunt, I don't trust Sprott to manage my money -- their tactics are an indication of poor character.


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## gardner

While I resent Sprott's high handed bullying, I have basically given up caring. The price gap to NAV is closing in anticipation of the deal closing and if it looks good next week I will likely sell to take the capital loss.

I am growing disillusioned with PMs in general, but if I want to re-join the party in January it will be via a position in G or ABX.


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## james4beach

gardner said:


> While I resent Sprott's high handed bullying, I have basically given up caring. The price gap to NAV is closing in anticipation of the deal closing and if it looks good next week I will likely sell to take the capital loss.
> 
> I am growing disillusioned with PMs in general, but if I want to re-join the party in January it will be via a position in G or ABX.


I'm happy to hear you're disillusioned with PMs  I have a different strategy here, and just have long term exposure to gold in my asset allocation for diversification and portfolio risk reduction.

By the way, MNT continues to benefit from CEF.A's situation. Volumes are picking up and spreads are tightening. I think MNT will become the gold vehicle of choice for Canadian investors.

Bought some more MNT today and gold/silver is now exactly 25% of my net worth.


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## james4beach

The transfer to Sprott has now been finalized. They are starting to move CEF's gold and silver bars ($4 billion worth) from the bank to the Royal Canadian Mint, who will be the new custodian.

At the moment, CEF.A has been delisted and is no longer trading. According to the below web site, CAD-traded CEF.A will be coming back some time in January. At the moment, only the USD versions are trading.

http://sprott.com/investment-strategies/physical-bullion-trusts/gold-silver/


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## james4beach

The supposed reason Sprott (bless their generous hearts) wanted to take over CEF was to reduce the discount to NAV. They claimed that shareholders would get better performance under them with the price trading near NAV, instead of at a discount.

My suspicion is that the opposite will happen due to the inefficiency of transferring to Sprott, the payout compensations to existing shareholders, and Sprott's history of higher expenses.

We can now test this claim, because market prices don't lie. I'll use CEF traded in the US, and compare against 63% GLD & 37% SLV to match the fund composition. Let's start with the price on 2017-11-15 when CEF was 13.23 because gold and silver were little changed the day before & after that day. We can calculate what today's price should be if Sprott didn't lose any of my money.

*Minimum* expected performance in CEF since 2017-11-15
= 0.63*(GLD.today / 121.41) + 0.37*(SLV.today / 16.03)

As of January 26, the minimum expected CEF performance to preserve the current value under Spicer management = 0.63*(128.07/121.41) + 0.37*(16.41/16.03) = 1.043 or +4.3%

But the price change in CEF (in USD) is from 13.23 to 13.60 or +2.8%

Since Sprott took control we're *-1.5% below* where the share price should be. I will keep monitoring this. I also spot checked another starting date to make sure this wasn't a fluke of the start day, and same result.

So far, Sprott has destroyed value for unitholders. Hopefully it goes positive, if Sprott knows what's good for them.


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## james4beach

I dumped my CEF.A shares. After Sprott took over the fund, the discount to NAV _increased_ (exact opposite of their promise) and the unit price has deteriorated since pre-takeover. Sprott destroyed value for shareholders.

I will move the money to liquid alternatives that track gold well: MNT in CAD or IAU in USD.

CGL.C is ruled out as it doesn't have an active market. As I've warned others on this board, the fund is too small and there isn't enough liquidity. Today it's 1 pm and 0 shares of CGL.C have traded, the bid/ask spread is 10 cents.


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## james4beach

james4beach said:


> The supposed reason Sprott (bless their generous hearts) wanted to take over CEF was to reduce the discount to NAV. They claimed that shareholders would get better performance under them with the price trading near NAV, instead of at a discount.
> 
> *My suspicion is that the opposite will happen* due to the inefficiency of transferring to Sprott, the payout compensations to existing shareholders, and Sprott's history of higher expenses.


I posted this over a year ago. Now we know that, in fact, CEF has been doing badly under Sprott. They failed to deliver on all of their promises and have demonstrated the hollowness of their original argument for the takeover.

CEF still trades at a discount to NAV, stil a whopping 3.5% discount, even with gold hitting new highs! This is ridiculous. Under previous management, CEF actually swung to premiums to NAV during bull phases. I've owned CEF for a long time and under previous highly bullish conditions like these, there would typically be a premium of one or two percent.

By my estimate, CEF is now priced about 4% to 6% worse than it would have been under the old management. Unit holders have been worse off ever since Sprott aggressively took over this fund.

In my opinion, Sprott flat out lied during their takeover -- and now we have the proof. I'm still angry at them and will avoid anything this firm is involved with. Happy I dumped my units but some family members of mine still are stuck with CEF and have suffered from Sprott's poor management and chronic discount to NAV.


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## gardner

james4beach said:


> some family members of mine still are stuck with CEF and have suffered from Sprott's poor management and chronic discount to NAV.


Same here. On the plus side, it is actually gaining value this quarter, instead of languishing in the doldrums year after year. It is now back to the price I bought it at.


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## james4beach

I helped some family members dump their remaining positions in CEF. None of us own CEF any more.

Since buying in late 2007 they're up 90%. This works out to 5.6% CAGR. Actually not too bad when you compare to the other things they bought at the time:
XIU (TSX) performed at 4.6% total return
XBB (bonds) performed at 4.5% total return

Kind of interesting to see how unpredictable outcomes can be, even over 12 years. Bonds performed about the same as stocks, and precious metals, even in a not-so-great fund, beat both of them.

Hey wait a second, I thought stocks were supposed to do great > 10 years? Hmmm...


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