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View Full Version : CEF premium at 15% - what is it?



ER59
11-23-08, 04:45 PM
I have 2 PM ETF questions:
1. CEF<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o:p></o:p>
According to CEF website, There is 15.9% premium when you buy it.<o:p></o:p>
http://www.centralfund.com/Nav%20Form.htm (http://www.centralfund.com/Nav%20Form.htm)<o:p></o:p>
NAV $8.14; Closing market price $9.43<o:p></o:p>
But the spread for CEF is only 29 cents, bid - $9.20; ask - $9.59,<o:p></o:p>
So I can buy at $9.59 and sell at $9.20<o:p></o:p>
Can someone explain what is this premium, and how does it affect me as an investor in CEF<o:p></o:p>
<o:p> </o:p>
2.DGP<o:p></o:p>
Here is the fund strategy (from Schwab website)<o:p></o:p>
The investment seeks to replicate, net of expenses, twice the daily performance of the Deutsche Bank Liquid Commodity index - Optimum Yield Gold Excess Return.<o:p></o:p>
The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.<o:p></o:p>
<o:p> </o:p>
Can anyone translate it into simple terms, understandable by average Joe/Jane ?<o:p></o:p>
<o:p></o:p>

pfherbert
11-23-08, 06:52 PM
Regarding the Central Fund of Canada, they own a fixed amount of gold and silver and have issue stock such that each share represents a fraction of the gold and silver. If you take the value of the all the gold and silver and divide by the number of shares you get the net asset value (NAV) which you show as $8.14.

The stock trades on the market and depending on demand can cost more or less than the actual value of the silver and gold it represents. At the close of day Friday it cost 15.9% more. I believe this is historically a high premium. I own a number of shares I bought a few years ago for about an 8% premium. Occasionally the premium has even been negitive but I believe that's rare. The high premium reflects high demand.

The ETFs like GLD and SLV work differently and expand and contract to try to track the price of gold and silver.

Jim Nickerson
11-23-08, 06:53 PM
I have 2 PM ETF questions:
1. CEFffice:office" /><O:p></O:p>
According to CEF website, There is 15.9% premium when you buy it.<O:p></O:p>
http://www.centralfund.com/Nav%20Form.htm (http://www.centralfund.com/Nav%20Form.htm)<O:p></O:p>
NAV $8.14; Closing market price $9.43<O:p></O:p>
But the spread for CEF is only 29 cents, bid - $9.20; ask - $9.59,<O:p></O:p>
So I can buy at $9.59 and sell at $9.20<O:p></O:p>
Can someone explain what is this premium, and how does it affect me as an investor in CEF<O:p></O:p>
<O:p> </O:p>
2.DGP<O:p></O:p>
Here is the fund strategy (from Schwab website)<O:p></O:p>
The investment seeks to replicate, net of expenses, twice the daily performance of the Deutsche Bank Liquid Commodity index - Optimum Yield Gold Excess Return.<O:p></O:p>
The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.<O:p></O:p>
<O:p> </O:p>
Can anyone translate it into simple terms, understandable by average Joe/Jane ?<O:p></O:p>
<O:p></O:p>

ER, you should stop using Word to compose your posts, or either edit out all the Word control symbols or whatever they are.

Closed end funds, look in Barron's for a listing, may sell for premiums or discounts. As an example, right now gold coins are selling at premiums, which mean buyers are willing to pay more than usual over the spot price (see Kitco for spot price quotes). The same can happen with closed end funds, of which CEF and GTU are, and is commonly the situation with CEF. When you buy it at Friday's close, you are paying more than the underlying gold and silver assets in it are valued. Look at GLD, an ETF, using ETFconnect.com and you'll likely see its premium is very slight.

DGP is a +200% ETF that will move in its daily pricing ~200% of what the underlying asset moves (underlying asset is "certain gold futures" the values of which are derived from the spot price of gold).

Generally if spot gold increases 1%, the futures manipulation allows the value of DGP to increase 2%, or vice versa. Gold loses 1%, DGP loses ~2%.

ER, sincerely, I do not mean to be disparaging of what you know or don't know, but you are coming across to me as someone like a child playing with a loaded pistol.

Were I you, I would do as I suggested in your other thread, subscribe to either The Chartist's mutual fund letter, don't do the stock newsletter, or to Harding's newsletter and use some or even all (that's certainly up to you) of your assets and follow the advice in the newsletter and learn from what either of those writers puts forth. I don't know how much you have in the way of assets, but if you can afford it, buy both newsletters.

If someone else has what they think are better suggestions than mine, then hopefully they will share them with you.