PHYS is the symbol for a Canadian gold exchange-traded fund (ETF) with about $700 MM in gold assets (U. S. dollars). It came public this year as a new fund and has typically traded at about a 12% premium to net asset value (NAV). This premium reflects confidence that all the gold is physical, with no use of derivatives; high liquidity for trading purposes; claimed ability to be taxed at a capital gains rate rather than as a commodity sale; and the ability to withdraw the equivalent of a large bar (worth hundreds of thousands of dollars) as a form of redemption of one's shares in the ETF. (Please note that the last feature is a negative for small investors due to adverse tax consequences to existing shareholders should a large shareholder actually redeem. Currently I do not think there is enough appreciation in gold's price to make this feature important.)
In any case, the more typical 12% premium to NAV has recently and fairly suddenly dropped to 6.4%. Click HERE to view the webpage that shows data on how infrequently this ETF has traded under a 7% premium to NAV.
Having sold out of PHYS recently at a double-digit premium to NAV, I am long it again as of today. It's easy to see that at some point within the next 12 months gold being 7% higher simultaneous with this ETF regaining a 10% premium to NAV; the potential 7% price gain of gold (the metal) plus a 3-4% proposed gain in the premium to NAV would imply a 10-11% total return (minus the small expenses of running the fund and minus brokerage commissions; currently the bid-asked spread is one to two pennies, so that's irrelevant).
I continue to see a financial pendulum that may be swinging to restore gold's importance or even primacy in international and possibly national finance, with a higher real value relative to Federal Reserve notes than it now has.
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