Looking at the green and red flashes this morning in a semi stupor I see the Central Fund of Canada (CEF) is our biggest loser yet all other precious metals holdings are all up. Odd, but the reason is quickly discovered-- here's a paraphrasing of the pertinent CEF announcement:
CEF is pleased to announce that a syndicate of underwriters led by CIBC have exercised their right to purchase an additional 1,800,000 Class A Shares at a price of U.S.$22.30 per Class A Share, for additional gross proceeds of approximately U.S.$40,000,000 to Central Fund. The Underwriters agreed earlier this morning to purchase 14,350,000 Class A Shares for gross proceeds of approximately U.S.$320,005,000. The purchase price of U.S.$22.30 per Class A Share is non-dilutive and accretive for the existing Shareholders of Central Fund. The additional net proceeds have been committed to purchase gold and silver bullion for settlement at closing, in keeping with the asset allocation policies established by the Board of Directors of Central Fund.
CEF now has approximately $360 million additional funds to buy gold and silver bullion. Given their long standing practice of buying silver and gold at a 50:1 ratio, given today's prices CEF will be housing an additional 109,000 ounces of gold and 5,454,545 ounces of silver (give or take).
Is this a good thing? It certainly takes more physical gold and silver off the street. Today's price drop was likely a necessary and temporary part of getting the new CEF shares to the street. Mirroring the drop in price to around $22.30 per share, CEF's premium to NAV dropped from 8% to 5%. Today was not a bad time to buy CEF if you were looking to add precious metals for the long haul.
4 comments:
enid, I have pondered buying CEF for some time, but have not, and this is a good chance to ask a CEF shareholder some questions that I cannot answer (I understand the theory behind closed-end funds' premiums and discounts). The questions: Given that one can buy GLD and SLV essentially at NAV, why is it preferable to buy CEF at any premium, even a historically low 5%? What makes CEF worth a premium when a viable alternative is available without a premium? Assuming that a $10,000 purchase is made, a 5% premium means $500 is being paid for ________?
Thank you,
JCarroll
Hello J
Several PM market watchers have concerns about whether GLD and SLV actually have the physical metals they claim. Here's one of many: http://fskrealityguide.blogspot.com/2009/08/are-gld-and-slv-etfs-fraud.html Harvey Organ is another critic. He has a daily blog you can check out. I also follow Eric Sprott and Turd Ferguson. Now I don't know if these people's concerns are correct, but I opt to get as close to physical as possible. Still who knows, maybe CEFs VP is taking bars out the back gate. Pick your poison I suppose.
Another thing is the NAV premium has always been there so it's not lost money. It's more like a deposit you're going to get back. Some watch the CEF premium closely and buy when it's low and sell when it's high. I wouldn't buy CEF when the premium is at the high end of its range.
enid, thanks for the response. FYI, there is an interesting discussion in today's comments thread over at Random Roger's blog about the possibility of GLD being a fraud.
JCarroll
J-- I chuckled when I saw that on Roger's site. What timing. I wouldn't use the "f" word about GLD-- not knowledgeable enough. I am curious as to why investors are willing to pay the the very high premium on PHYS compared with SLV. Is it because PHYS makes it easier to withdraw physical silver?
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