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This may be the first time I have ever written a RANT topic in the morning.  However, when I compiled the below data, I felt compelled to put it ahead of the queue.

Over the past decade, NO ONE has done more analysis on the closed-end funds CEF, GTU, and SVRZF (run by the Spicer family); and the more recently public Sprott funds – PHYS and PSLV.  I don’t hold positions in these funds today – and likely NEVER will due to the heightened risks described below – but have in prior years.

Given I have written about these funds ad nauseum over the years, I will not discuss all aspects in this article.  In a nutshell, all five funds are run by honorable people with their shareholders’ best interests at heart.  Additionally, I have ZERO doubt that every ounce of gold and silver purported to be in the funds is in fact there; safe and sound in secure vaults in Canada…

However, they are still “PAPER PM Investments”; and thus, subject to not only typical stock market risks; but in many cases, those of mining stocks – such as:
1. Systemic risk – if stock markets, banks, or brokerages where such stocks are held or traded are suspended, you may never see your investment again.
2. Taxation risk – The government could impose “windfall” capital gains taxes at any time.
3. Naked shorting risk – The Cartel can (and does) naked short closed-end shares, to prevent premiums to net asset value, or NAV, from rising enough to justify new offerings; and at times – particularly in down markets, like THIS YEAR – push them below NAV.  Per the below table, this is precisely what happened this month; as three of the five funds are now trading below NAV, and the other two at or barely above it…

4. Redemption Risk – In the “Spicer funds,” share redemption for actual metal is not permitted.  For the “Sprott funds,” redemption is possible in certain situations, but only in large amounts.  More importantly, the gold and silver held by these funds is the least desirable in the bullion investment universe.  The PHYS gold fund generally holds 400 ounce bars that few individuals on the planet can afford, while the PSLV silver fund holds 1,000 ounce bars.  In the real world, such bars often trade below NAV due to their impracticality; let alone, heightened counterfeiting risks.
5. Confiscation Risk – Although infinitesimal, in my view (as I believe Canada to be one of the safest PM jurisdictions in the world), the giant, well-documented stashes of PHYSICAL gold and silver could have giant “X’s” on their back during a monetary crisis.
6. “Trigger Risk” – The ease of selling such funds with the “click of a mouse” often causes investors to “pull the plug” during sharp declines; just as they do with mining stocks.  The Cartel knows this, and uses this psychological “fear factor” against you.
Irrespective, some people still hold “PAPER PM investments”; either out of necessity or because they feel more “comfortable” that way.  That’s fine, but the risks above are EXTREMELY powerful.  However, the final risk factor (below) may trump all the aforementioned ones; as it may mean the difference from benefitting from PM price increases or NOT…
7. Proxy Risk – This is the risk the funds do not perform as well as the underlying gold and silver – which is entirely possible; as by definition, CLOSED-END FUNDS can trade at either a premium or discount to NAV.
I have long discussed my suspicion the Cartel naked shorts these funds to keep the premiums low; knowing (particularly in the case of the Sprott funds) that as soon as the premium reaches a reasonable value, new offerings (and metal purchases) will be made.
Alternatively (and/or concurrently), the NAV premium could contract (or discount widen) due to the aforementioned risk factors; just as is the case with the GLD and SLV ETFs – which currently trade at 3% discounts to their underlying Net Asset Values.

What prompted this RANT was the performance of these funds in the past three weeks; amidst the Cartel’s latest brutal attack.  As you can see, ALL FIVE funds dramatically underperformed PHYSICAL gold and silver – on average, by 2.1 percentage points – including an astounding 3.2 percentage points for the bellwether CEF fund…

Better yet, I went to CEFConnect – a database of Closed-End Fund data – to find graphs of the historical performance of these funds.  To start, here’s CEF (Central Fund of Canada); which as you can see, averaged a roughly 7%-12% premium to NAV for the first decade of the PM bull market.

However, once silver and gold hit ALL-TIME HIGHS in May 2011 and September 2011, respectively, said premiums suddenly collapsed.  I’ll leave it up to you to decide the reason; but irrespective, it now trades at a discount to NAV; i.e., its lowest level in a decade

And as you can see below, the same has occurred in all five funds.  Actually, the database doesn’t have info on the extremely illiquid SVRZF fund.  However, as shown in the table above, it currently trades at the largest discount of the five funds.  Here’s the Spicer gold fund, GTU…

…the Sprott gold fund PHYS…

…and the Sprott silver fund PSLV…

I will not speculate as to a specific cause (or causes) of the atrocious recent performance; at a time when access to HONEST, LIQUID, PHYSICAL gold and silver assets should arguably trade at higher premiums.  However, the “proof is in the pudding”; and don’t think for a second they can’t decline to steep discounts to NAV in the future; particularly as governments become MORE desperate to suppress PM prices.

Remember, when PROTECTING one’s assets against inflation and draconian government acts, there is no substitute for PHYSICAL gold and silver.  I am not saying there are ZERO risks to anything.  However, compared to “PAPER PM Investments” like ETFs, mining shares, and even closed-end bullion funds, PHYSICAL gold and silver have BY FAR the lowest risk profiles


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