# CEF.A (Central Fund of Canada) gold & silver



## james4beach (Nov 15, 2012)

This is something I've held for a while. There's been a very good multi-year uptrend, but I'm wondering if it's getting close to violated. For instance in 2008, CEF.A hardly dropped at all ... incredible resilience in the financial crisis.

I think an aggressive speculator could buy CEF.A here, at the bottom of the range. I'm tempted to wait to see if this uptrend is being violated. Thoughts? I think you can click this image to see it large


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## thenegotiator (May 23, 2012)

james4beach said:


> This is something I've held for a while. There's been a very good multi-year uptrend, but I'm wondering if it's getting close to violated. For instance in 2008, CEF.A hardly dropped at all ... incredible resilience in the financial crisis.
> 
> I think an aggressive speculator could buy CEF.A here, at the bottom of the range. I'm tempted to wait to see if this uptrend is being violated. Thoughts? I think you can click this image to see it large
> 
> View attachment 243


well .
if it is an opinion u are looking for and i am an aggressive speculator ... right from the chart only u are in no mans land.
nevertheless on the daily u have a gap.
the same on the weekly.
AND GAPS GET FILLED.
and for the friggin non believers do not come back and ask why or when.
they simply get filled .... period.
but he.
what do I know right?
cheers


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## james4beach (Nov 15, 2012)

Unfortunate to see the precious metals continue to fall (and CEF.A fall accordingly).

I looked into a couple things today, and wanted to share my findings

1) CEF discount to NAV. On the web site it shows 5% discount to NAV, but there is a flaw in their discount calculation. They're using the London gold & silver fix, which occurs at a different time in the day than the closing market price. You can easily calculate a real-time discount to NAV using the current gold & silver price, say from kitco.com, and the current market price. I did this at 13:50 today and found CEF (US) last trade 15.81, NAV 16.158, meaning *discount to NAV is -2.15%*

2) It's also in the news that ETFs like GLD have been dumping lots of physical metal. I looked at CEF's holdings figures and they have not sold any metal in the last 12 months. In fact they haven't made a single sale in metal holdings going back at least to 2008. So while there's lots of metal being dumped by "paper" world funds, CEF doesn't seem to be participating.


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## CanadianCapitalist (Mar 31, 2009)

Interesting findings james. About (2). ETFs have no choice but dump their holdings if there are net redemptions from the fund. That's the nature of the beast. Closed-end funds like CEF don't need to because investors are buying and selling from each other, which also explains why you can see a premium or a discount.


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## james4beach (Nov 15, 2012)

Yes that's right about the closed end fund. I would imagine that if gold continues to be unpopular, then what would eventually happen is that the fund would run out of cash (which they use to pay expenses) and they would have to liquidate some metal to raise cash. They currently have $41 million in cash and spend $17 million a year in expenses, which implies that if metals remain weak, they would be forced to liquidate some metal by mid 2015

Here's the spreadsheet I use to calculate real-time premium or discount to NAV (using US$ figures)
https://docs.google.com/spreadsheet/ccc?key=0AsTuy4YR2D5TdHRPU21vNWxhV1ZrVjBNR1g2VDJjS2c&usp=sharing


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## james4beach (Nov 15, 2012)

An update since my original post. I think lots of technical damage has been done on CEF.A, as it has fallen below the uptrend pattern. I didn't end up buying any beyond my original position from years ago.

More worrying is the persistent (and large) discount to NAV. Calculated with that spreadsheet I posted earlier, this morning (June 25) it had -6.5% discount to NAV.

That's a pretty big discount! Here's a premium/discount history from cefconnect.com. So what's going on here, is it simply "not popular" any more with retail investors? You can see there hasn't been a meaningful discount since 2001. Or is there something more going on?


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## james4beach (Nov 15, 2012)

Nearly 4 months later and the CEF discount is still around -6.5% ... certainly disappointing from a performance standpoint.

But they have not dumped any metals. Their ounces of gold and silver have been constant this whole year.

I haven't sold any of my shares as this has been a good long term holding that I'm satisfied with. I'm not buying any more, as I think I have enough precious metals exposure already


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## mike06 (Aug 4, 2011)

Hey James, is there any particular reason that you prefer CEF over a more pure play on gold like IGT? Just curious.


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## james4beach (Nov 15, 2012)

mike06 said:


> Hey James, is there any particular reason that you prefer CEF over a more pure play on gold like IGT? Just curious.


There are a few reasons I chose CEF.A over IGT. By the way CEF holds gold & silver whereas IGT (same as IAU) is gold


 Central Fund has a well established track record, far longer than any of the more recent ETFs. It's been a TSX traded pure bullion fund since 1983 so we're talking about a 30 year track record and that gives me more confidence that it's not a sham
 As a TSX listed security, CEF.A (63,000 shares/day) is much more liquid than IGT (6,000 shares/day)
 IGT is a cross-list of US domiciled IAU. I'm nervous about US tax laws on commodity investments which have been in flux. I'd rather be domiciled in Canada
 IGT physically holds its gold mostly in New York and London -- I'd prefer Canadian locations
 IGT's custodian is JP Morgan, London UK -- again I'd prefer a domestic bank operating under domestic law
 CEF.A has a Canadian custodian, and the metal is physically stored in Canada, in vaults of CIBC --- far superior, in my view

For me the domestic nature of CEF, plus its long history, gives me comfort knowing it's operating under Canadian law, tax law, with no dependence on foreign financial institutions (and personally I don't trust JP Morgan much).

I think the only other bullion fund I'd consider besides CEF would be PHYS, whose custodian is the Royal Canadian Mint


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## mike06 (Aug 4, 2011)

Thanks James, I actually didnt even notice the PHYS fund in my search for canadian bullion ETFs. Is there anything that stands out about this fund to you that makes it notably worse than CEF other than the much shorter track record?


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## james4beach (Nov 15, 2012)

Nothing stands out to me as notably worse, but I only became aware of PHYS (Sprott Physical Gold Trust) a few months ago. I have not read its financial statements yet though. There is a nice thread here you may want to check out
Central Fund of Canada (CEF) vs. Sprott Physical fund (PHYS)???

The MERs are similar, PHYS at 0.35% and CEF at 0.31%. Initially the MER on PHYS was much higher but as the fund filled with assets, the fee dropped (as a %)... these seem to be very competitive products.

We have several family members who own shares of CEF.A. I am seriously considering diversifying our family bullion holdings by switching someone from CEF.A to PHY.U (both on TSX). Not because I have any doubt in CEF, but just to diversify our exposure. I'm not doing it yet but it's on the list of things to research.

One thing you should be aware is that both PHYS and CEF are closed end funds, so they can trade at premium or discount to NAV.


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## james4beach (Nov 15, 2012)

There is one notable *advantage* of PHYS over CEF. As described in their one page fact sheet:



> Unlike most traditional exchange-traded gold funds, the Trust holds its gold bullion assets in custody
> at a Federal Crown Corporation of the Government of Canada. There is no levered financial institution
> between the unitholders and the trust’s physical gold, and no risk of financial loss in the event of a
> bankruptcy or nationalization of the financial institution.


They're basically pointing out, politely, that gold stored with the Royal Canadian Mint is safer (or at least more accessible) than gold stored with CIBC. I agree that it sounds better at the Mint.

PHYS apparently originally traded at a huge premium to NAV, which is a big problem and would have prevented me from buying. However I see that this premium has entirely gone away and it's now -0.58% discount to NAV.

Yes, PHYS (PHY.U on TSX) looks very interesting.


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## HaroldCrump (Jun 10, 2009)

There is also CGL for gold holdings. It is by iShares (now Blackrock).


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## CanadianCapitalist (Mar 31, 2009)

Also there are Gold and Silver ETRs issued by the Royal Canadian Mint. There is a gold ETR and a silver ETR and both have Govt. of Canada backing. MNT and MNT.U are gold ETRs and MNS, MNS.U are silver ETRs. Interestingly, right now both trade above NAV.


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## james4beach (Nov 15, 2012)

That MNT thing is very interesting, had not seen that before either. Especially interesting that it's explicitly backed by the government and you've cut out some middle men. One thing that's awkward about it is that they don't release financial reports!

The OSC has granted them an exemption from having to regularly file financial statements. I realize that they're crown and the share is a direct claim on Mint gold, but I still find it strange that I can't pull up audited financial statements.

CanadianCapitalist, what's your thought on that?


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## CanadianCapitalist (Mar 31, 2009)

j4b: I don't follow MNT at all. I just recalled seeing the news release when it came out. I personally wouldn't worry about financial statements because backing of the GoC is about as bullet-proof as it can get as far as securities go. Perhaps, Govt. backing explains why these securities trade at a premium to NAV?


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## james4beach (Nov 15, 2012)

I see what you're saying. I was just talking about MNT on the phone with my friend and he observed that this is almost like the government has created a gold-backed "currency"... the MNT share represents an amount of gold, that you must take on the faith in government (and redemption-wise, is certainly fully backed by the government). Interesting concept and I think he may be right that MNT is currency.

CanadianCapitalist: do you know if special tax situations apply to things like selling shares of CEF / PHYS / MNT at a profit? Or is it standard capital gains, same as any other stock?


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## mike06 (Aug 4, 2011)

CC is MNT trading at a NAV premium? When I click CDN $ (MNT.U) on their website it shows almost a 6% discount as of fridays close - NAV 15.26 vs closing of 14.40. Yet the US$ side of it (MNT)14.59 NAV vs 15.20 closing price. Perhaps I am reading these values completely wrong


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## CanadianCapitalist (Mar 31, 2009)

mike, I don't recall the price & NAV I saw yesterday. It is well possible that I looked at the USD NAV and CAD ETR price and concluded incorrectly that the ETR is trading at a premium. Looking at it right now, I'm seeing a discount as well. The NAV of the ETR is USD 14.59. MNT.U last traded at USD 14.40. If you are looking at C$, NAV is $15.26. MNT traded at $15.20. Therefore both MNT and MNT.U are trading at a small discount to NAV.


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## CanadianCapitalist (Mar 31, 2009)

james4beach said:


> the MNT share represents an amount of gold, that you must take on the faith in government (and redemption-wise, is certainly fully backed by the government). Interesting concept and I think he may be right that MNT is currency.
> 
> CanadianCapitalist: do you know if special tax situations apply to things like selling shares of CEF / PHYS / MNT at a profit? Or is it standard capital gains, same as any other stock?


I haven't looked at MNT in any detail but I would expect it to be no different than holding any security. I poked through the website and found this document that might help you determine the tax consequences:

http://www.reserves.mint.ca/Gold/Content/documents/en/ETR - Information Statement.pdf


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## mike06 (Aug 4, 2011)

woops i had it backwards. yes youre right, small discount. i dont know why i thought MNT.U was the canadian version. either way its held up well like you mentioned compared some of the others that have a pretty significant discount


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## mike06 (Aug 4, 2011)

when you see a NAV discount on these funds, do you see that more as a buying opp or moreso as a red flag?


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## james4beach (Nov 15, 2012)

I view the premium/discount to NAV as an indicator of current popular sentiment. In those days near the peak (with lots of interest among average investors) there were big premiums on all the funds

That shrank away and became a discount as gold became out of favour. Given that the discount appeared on all of these products I don't see any particular fund-specific warning sign. That's my reading anyway... precious metals have became unpopular and the discounts reflect this


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## miass (Oct 30, 2013)

Looking to invest into PHYS. Would you recommend PHY.U or PHYS? I understand that PHY.U is traded on TSX, but the trading volume is really low. Would PHYS make more sense? What are pros and cons of each? Appreciate the advice.


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## james4beach (Nov 15, 2012)

I haven't ever invested in PHYS but I am not totally sold on the product. Here's why. Look at the gold content represented per share of PHYS.

The financial statements for the first year end in 2010 show the trust held 820,753 ounces of gold. Divide by number of units outstanding 97,049,573 and this tells you that each share represented 0.008457 ounces of gold back in 2010. Today the fund holds 1,578,422 ounces of gold over 190,724,020 units so each share represents 0.008276 ounces of gold.

So over 3 years the PHYS share has "lost" 2.1% of metal which is about *0.7% loss per year*. This loss rate is substantially higher than the posted MER of 0.42%.

Think about that. The whole idea is to hold PHYS in lieu of physical gold, so you want one share to have a steady gold "content". Of course there are fees, so you expect the MER of 0.42% to come out of it.

But PHYS in fact has been losing gold at a rate of 0.7% per year. I cooled off on the product once I noticed this. Why is the gold content declining at 0.7% a year? There must be some hidden fees that aren't encapsulated by that MER.


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## miass (Oct 30, 2013)

Thank you, james4beach. What is your opinion on on CEF vs MNT?


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## james4beach (Nov 15, 2012)

The only one of these products I know in any detail is CEF so unfortunately I can't give you a good comparison of the 3

I like CEF, which is why I hold it. I remember checking the effective fees and verifying that with CEF it is low, at 0.31% MER (compared to PHYS at 0.42% and likely higher total fees of 0.7%). I don't know too much about MNT but its data sheet says fees are 0.35%

From a fees perspective I think CEF and MNT are comparable, but PHYS fees are somewhat higher.

I can tell you one difference between CEF and MNT is whether the gold is 'allocated' (means segregated, distinctly identified as belonging to the fund). CEF's bullion bars are fully allocated whereas MNT's are not. It's better when they're allocated.

Tough call here on CEF vs MNT. On one hand I like that CEF's bars are allocated (and verified by auditor inspection). On the other hand I like that MNT's gold is at the Royal Canadian Mint as opposed to CIBC. Tough call!


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