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Central GoldTrust (GTU on the NYSE)
Old 05-01-2014, 03:24 PM   #1
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Central GoldTrust (GTU on the NYSE)

Assuming that one wanted to own some gold for part of portfolio, what is the downside to owing GTU, a closed end fund which is currently trading at a bit of a discount to its net asset value (NAV)? It seems to have a history of trading a bit above its NAV.

I recently bought a chunk of this and am considering adding a bit more. I am a citizen and resident of the USA holding this in a taxable account.

If I am going to invest in gold, this seems like the best vehicle for me in my taxable accounts. Please dissuade me if appropriate.

Thank you in advance.
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Old 05-01-2014, 04:31 PM   #2
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I don't know much about GTU, but my preference is GLD (the gold etf) since it's more liquid and has options traded on it.
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Old 05-02-2014, 02:24 AM   #3
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The expense ratios between GTU and GLD are low and nearly identical - .33% for GTU and .4% for GLD.

As has been mentioned, GLD is more liquid.

GTU trades at a small discount to NAV, which is favorable.

But could I interest you in another option for your taxable account, i.e. holding physical gold in the form of 1 ounce American Gold Eagles ? Banks can close their doors, countries can go bankrupt, the stock exchanges can be shuttered - physical gold lives on. Just something about holding the real thing in your hand (at least for some small percentage of your portfolio).
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Old 05-02-2014, 07:04 AM   #4
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Quote:
Originally Posted by wingfooted View Post
The expense ratios between GTU and GLD are low and nearly identical - .33% for GTU and .4% for GLD.

As has been mentioned, GLD is more liquid.

GTU trades at a small discount to NAV, which is favorable.

But could I interest you in another option for your taxable account, i.e. holding physical gold in the form of 1 ounce American Gold Eagles ? Banks can close their doors, countries can go bankrupt, the stock exchanges can be shuttered - physical gold lives on. Just something about holding the real thing in your hand (at least for some small percentage of your portfolio).
+1.

There is an increasing divergence in the fundamentals of physical gold versus futures contracts. The price of gold is set at the margin (as it is for other asset classes), primarily through the futures market.

There is a possibility we could see a break somewhere down the road where the price of physical gold is substantially different from paper gold.

If your intent is to hedge the rest of your portfolio, I'd recommend holding physical gold. There are several ways to do that.

If you're just interested in exposure to gold for speculative reasons and are okay with the risks of holding paper, I'd go with GLD.
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Old 05-02-2014, 07:59 AM   #5
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Thanks for the replies so far.

I have considered physical gold; but, for me, the costs (transaction, tax, storage, insurance, etc.) of physical gold outweigh the risks of owning paper.
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Old 05-04-2014, 05:29 PM   #6
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While I've never had the slightest desire to own physical gold, it makes up 25% of Harry Browne's "Permanent Portfolio," which I've been committed to for about six years, so I've had no choice but to become educated about it.

GTU owns physical gold in a vault and it a well-run closed end fund. I'd put it solidly in the middle of a spectrum of ways of owning gold with physical bullion in your possession at one end and GLD at the opposite end. If you search physical vs. paper gold on Zero Hedge, Casey Report or many other sites I think you may change your mind about owning paper gold being worth the risk. Personally having done a great deal of research I'd skip gold entirely rather than own GLD or the like.

Do bear in mind that GTU being a closed end fund means you need to time your buys carefully and also be aware of the special tax rules that apply (one needs to file IRS form 8621 every year) to such funds. Gold is otherwise taxed as a collectible (28%!).

Check out Bullionvault.com (in particular) and you'll see that you can own physical gold for less than you'll pay over time for most paper gold choices. You might consider keeping the GTU you already have and buying bullion from BV or elsewhere.

There's more info than you'll probably ever want or need on the PP forum:

Gold - Page 1
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Old 05-06-2014, 11:02 AM   #7
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The idea that these entities that own physical gold in a vault should be understood within the realm of the world of gold and how these papers trade.

As an example, if monetary policy is determining to keep the price of gold down so as to lessen inflation fears, the Federal Reserve will lease some of it's gold to say JP Morgan Chase. Or the Federal Reserve can "deposit" gold with the Bank for International Settlements in Switzerland, who will then lease to commercial banks for the writing of contracts at 10 to one leverage. This gives JP Morgan Chase or other commercial banks the legal ability to write forward contracts on gold that they "own" so long as the contracts expire before the lease of their gold, with this leverage they are allowed to write contracts for 10 times the amount of gold they "own", that is stored in a "vault". This gives the Federal Reserve the dual goodies of income from gold leasing and downward pressure on gold prices far in excess of any effect the government could have by selling the physical gold. It gives the contract holder the ability to state that all of their contracts are backed by physical gold in a vault.

In reality all of the owners of the contract have a contract that states there is physical gold backing the contract stored in a vault and not physical gold. The nature of the contract is the assumption that not everyone will seek delivery of gold, so therefore confidence can be maintained in these pieces of paper. If contract holders do as the Hunt Brothers governments will change the rules.

Some suspect the reason the German government is being forced to wait 7 years for their 200 tons of gold which they requested last year is that the gold is actually leased out by the Federal Reserve at the present time, since the Germans apparently do not have specifically identifiable bars on deposit with the US, only an agreement that US will deliver the gold. US would not even allow Germany an audit to prove they had segregated their gold. And the biggest problems with most contracts is the force de majeure clause which makes the contracts useless when you need them most. So at any one point in time, the German Government, the US Government, JP Morgan Chase and the ETF for the gold fund, could all rightly claim they have the same 200 tones of gold stored in a vault for them. Talk about the velocity of money!

In any case, there are issues that could crop up on paper gold just when it would be the most advantageous to own gold so I prefer the physical gold. There are also vaults in Australia which would hold your physical gold for you as well as Harry Browne wrote.
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Old 05-06-2014, 11:46 AM   #8
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[QUOTE
In any case, there are issues that could crop up on paper gold just when it would be the most advantageous to own gold .[/QUOTE]


+1
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Old 05-06-2014, 12:10 PM   #9
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I don't need another different tax treatment. I stick with GDX if I want some quick exposure. I might consider the others in a tax deferred account.
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Old 05-12-2014, 11:01 AM   #10
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kevink and Running_Man,

Thank you very much for taking the time to respond in such detail. I have to imagine these posts to others who are considering building a position in gold for a portion of their portfolio as well as to me.
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Old 05-23-2014, 01:29 PM   #11
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