Dramatic rises (and drops) in premiums required for Canada’s main public repository for gold and silver almost surely indicate a bullion rush for assets.
Central Fund of Canada Ltd.’s (AMEX: CEF, Stock Forum) 7% gain Monday morning comes as trading thickens in the security that represents actual gold and silver deposits. Silver holdings in the closed-end fund were largely responsible for Monday’s gains.
Closed-end funds sell for premiums or discounts to their net asset values. In Central Fund’s case, the premium is above 18%. Shares in the past three months are changing hands at a greater pace than anytime in the past five years. In 2002 and 2003, when I first started writing about the SPICER family’s fund in my ThomWatch articles on MW, the premiums were rising toward the 15% level. (See articles.)
Central Fund, trading in Canada and the U.S.’s stock markets, has a share worth of $1.5 billion and holds about $800 million of gold and $500 million of silver. The rest is the premium that investors pay to own the fund. See asset figures.
J.C. Stefan Spicer tells me from Canada that the thickest premium he has seen on the fund his family created was 33%. That goes back to the very early part of this decade, when gold was percolating from $300 or so an ounce to $400 and above.
Spicer's father, Philip Spicer, first introduced the idea of a closed-end bullion fund in the early 1960s. Some seven or eight years ago, Stefan Spicer explained to me that his bullion funds go to great lengths to segregate, store and insure their holdings [Spicer also operates publicly created Central Gold Trust (AMEX: GTU, Stock Forum), which holds only gold].
"Our bullion is stored in separate cages, with the name of the owner printed on the cage, and on top of each pallet of bullion it states Central Fund or Central Gold-Trust," Spicer, Central Fund’s chief executive, told me then. "This disables the bank from using the asset from any of their purposes. We also pay Lloyds of London for coverage of any possible loss.”
It is still the same, Spicer tells me today.
There is a tonne of speculation in bullion circles about the long wait times and rising premiums for gold coins. Consumers are buying sovereign one-ounce coins in greater numbers than at any time in the past 25 years, according to some reports. The demand is ramping up premiums that folks pay for coins. A recently minted U.S., Canadian or Australian one-ounce gold coin, with gold priced at $810 an ounce, can sell for as much as $970. That’s about a 20% premium.
The Gold Anti Trust Action Committee (at www.GATA.org) says large bullion traders are discouraging the delivery of gold to futures traders who are “long” the December COMEX contracts that exchange hands in New York and determine the “paper” price of the metal. GATA’s Bill Murphy tells me the “paper price” of the metal reflects only part of the demand for gold in this time of currency turmoil.
This week, Spicer tells me Central Fund has had little or no challenge locating gold and silver bars for its repository. “We have not experienced any difficulties purchasing or receiving physical deliveries of bullion from the past offerings. Remember that we only purchase international good delivery bars,” he says.
I intend to discuss several other matters with Mr. Spicer and will report back. In the meantime, I will tell you the thickest premium Spicer ever has seen on Central Fund’s units, or shares, is 33%. On the gold-only Central Gold Trust, it is about 23% (I do not own either of these funds).
That is it for now. I am preparing the second issue of Ticker Trax By Thom Calandra, which will be available to paying subscribers. The ThomWatch articles here on Stockhouse, to be published twice to three times a week, will continue free to all members.
On The Ticker Trax
Ticker Trax By Thom Calandra will explore planet Earth for those few stakes that offer the prospect of excellent, in some cases cosmic, returns. It is for those who are entirely at ease with stratospheric levels of risk. (Please click here for charter sign-up.)
As we complete our investment research, we fully hope and expect, but cannot and do not promise, stratospheric returns. (Please see inaugural issue of Ticker Trax.)
I envision equity and commodity values in major markets across the globe rising as mega-investors, flush with that rare commodity, non-leveraged cash, resume their search for leading technologies, humans and services. Individual securities that represent small and mid-sized companies in life sciences, mining and energy will stage a steady advance. (See ThomWatch bullet points.)
It has been many years since my last service, The Calandra Report, put me at center stage. I recognize the shortcomings that led to my U.S. Securities & Exchange Commission settlement during those wonderful but manic times those many years ago. If I intend to take a position in something we discuss in Ticker Trax, I will state it prominently. Likewise, any sales.
I hope to repeat the success of my original subscription service, and I expect to follow every legal and ethical principle in the investment world. I receive no compensation of any type in exchange for commentary.
HOLDINGS: Thom’s cosmos of holdings is listed for free Stockhouse members on www.Stockhouse.com under the “portfolio setting” for user TCALANDRA. He does not own Central Fund of Canada or any other exchange traded fund that represents bullion He and his family do own recently minted gold coins.
THOM’S STORY: Thom Calandra helped his audience find value in a quagmire of investment choices. He also settled a valid complaint with the U.S. Securities & Exchange Commission in 2005. Thom co-founded CBS MarketWatch, MarketWatch.com and FT MarketWatch in Europe. As the voice of Thom Calandra's StockWatch and The Calandra Report, Thom fancied $300-ounce gold before that metal became an investment rage. Thom visited bioscience companies, metals mines and scores of thin-crust pie joints across the planet in a search for profit, fashion and pizze de trippa gorgonzola. Thom's novel PABLO BY NUMBERS was completed in summer 2008.
