Announcement

Collapse
No announcement yet.

ETF vs gold and silver

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • ETF vs gold and silver

    A thread for reposting results from the physical gold vs ETF thread:
    http://www.itulip.com/forums/showthr...light=physical

    SLV vs silver


    SLV is exhibiting decay


    GLD vs gold


    decay is now close to 3% and rising fast


    PHYS vs. Gold


    decay


    GTU vs gold


    decay is harder to see here, but it also is decaying


    I'm having a lot of trouble with CEF. I will discuss this in the comments:
    CEF vs gold and silver


    decay


    check my work on this one if you wish:
    http://buildengineer.com/itulip/CEF-vs-Gold-Silver.xls


    PSLV vs. SILVER


    decay
    Last edited by globaleconomicollaps; 03-25-13, 03:58 PM.

  • #2
    Re: ETF vs gold and silver

    gld has existed a bit over 12 years, and has an expense ratio of 40bps. if the gold price had held steady, gld would now be more than 4.8% below spot. [i'm not going to bother with calculating the compounding effect.] if it's only 3% lower, it's because the price has gone up over its history. no mystery here.

    Comment


    • #3
      Re: ETF vs gold and silver

      Originally posted by jk View Post
      gld has existed a bit over 12 years, and has an expense ratio of 40bps. if the gold price had held steady, gld would now be more than 4.8% below spot. [i'm not going to bother with calculating the compounding effect.] if it's only 3% lower, it's because the price has gone up over its history. no mystery here.
      Many people buy GLD with the miss-understanding that it tracks the gold price. This is NOT widely understood. Before I sat down to put these charts together, I hunted for an article with this info on Financialsense, gold-eagle and Safe-haven. I also checked Google for charts with names like GLD vs gold etc. Why am I not able to find these charts already put together if this is something "everybody knows"? Everybody does not know this. Especially they do not know that the brand new ETFs from Eric Sprott are exhibiting decay.

      Comment


      • #4
        Re: ETF vs gold and silver

        how did you think the expenses of the etf were being paid? And I would say that it DOES track the metal, but there is expense deducted.

        Comment


        • #5
          Re: ETF vs gold and silver

          Originally posted by jk View Post
          how did you think the expenses of the etf were being paid? And I would say that it DOES track the metal, but there is expense deducted.
          What does it mean to track the price of gold? It seems to me that tracking means the price is the same except for a fixed expense. so for instance we might have:
          ( price of gold ) = (constant multiple) * ( price of GLD) + ( expenses of the fund )

          The expense are relatively fixed. They include rent and overhead of storage and transaction fees. The storage fee rises as more gold is added to the fund, so this is a rising percentage not a fixed amount, but storage fees rise slowly with dollar value of gold volume. In short: the price of gold should parallel the price of a share of the fund. That is the stated intent of the fund.

          I am, at least in principle familiar with how the GLD ETF works. CEF seems to have a very different business model. However the fixed costs of the fund should have dropped as a percentage of the total assets of the fund. GLD now has billions of dollars under management. In theory the gap between the price of gold and the value of a share of the fund should be dropping with time not getting bigger. This principle should hold for all the precious metal ETFs. I see this decay in the double or inverse funds, and it makes sense there. The GLD fund was specifically advertised as not experiencing decay. I might be able to dig up some paperwork on that.

          CEF has been in business since 1987. If they had consistently seen a drop of 0.5%/year or so they would have been out of business 20 years ago. This clear rake off must be a new thing. I wish I had the annual reports for CEF back to the beginning so I could plot this gap.

          Comment


          • #6
            Re: ETF vs gold and silver

            I use GLD to trade gold short-term ( a few days to a few weeks). It tracks nicely over that time scale.

            For long the term, I continue to hold my physical.

            Comment


            • #7
              Re: ETF vs gold and silver

              Gec, your formula doesn't account for the passage of time. Expenses are recurring, not one time items.

              Comment


              • #8
                Re: ETF vs gold and silver

                Originally posted by jk View Post
                Gec, your formula doesn't account for the passage of time. Expenses are recurring, not one time items.
                I cannot believe I am having this conversation! Look at this chart. I will blow it up for you:


                The price tracked for exactly one day. After that it departed and never looked back. It is now in the 12% area. Does this look like it is tracking the silver price? Do you think that this is reflective of their costs? Do you think that any reasonable person would say "Yes, that looks like a good analog of the silver price. I will put my money in that one for 10 years instead of Bullionvault etc. ".

                This might be a good time to talk about the purpose of this exercise. Storage costs vary radically depending on how good you are at negotiation, how lucky you are and how much money you have. I want a way to abstract away that cost ( and all such fixed costs ) and just look at the price changes over the years. The exercise I have in mind is something like this: You buy a gold or silver coin at spot and the same day you buy a dollar equivalent of an ETF stock. You put the coin in a desk drawer and check the price of each, every day. At the end of ten years you compare and see how well they track. Note that my storage fee is zero. My transaction fee is zero and my fixed costs such as rent are ignored. This is the calculation that most people are interested in. They can individually, mentally add or subtract costs to the chart to see what their particular situation is.

                I want to point out that even experienced investors frequently do not know that this gap is growing. For instance Jesse routinely posts about the NAV on gold and silver ETFs. Not once have I seen him comment that the gap is growing over time. See here for instance:
                http://jessescrossroadscafe.blogspot...ertain_25.html

                Comment


                • #9
                  Re: ETF vs gold and silver

                  Do the log returns deviate? I think that is all you need to consider.

                  Comment


                  • #10
                    Re: ETF vs gold and silver

                    Originally posted by Chris View Post
                    Do the log returns deviate? I think that is all you need to consider.
                    First off. No. What is important is how much money you started with and how much money you finished with. That is how I decide whether to buy a stock or not.
                    Second, I am occasionally blindsided by a simple comment here. This is one of those times. The concept of log returns is very deep. I have just been reading about this here:
                    https://quantivity.wordpress.com/201...y-log-returns/
                    I will have to research the relative log returns of gold and ETFs.

                    Comment


                    • #11
                      Re: ETF vs gold and silver

                      Originally posted by globaleconomicollaps View Post
                      The price tracked for exactly one day. After that it departed and never looked back. It is now in the 12% area. Does this look like it is tracking the silver price? Do you think that this is reflective of their costs? Do you think that any reasonable person would say "Yes, that looks like a good analog of the silver price. I will put my money in that one for 10 years instead of Bullionvault etc. ".
                      According to the iShares web site, SLV has an inception date of April 21, 2006 and a yearly sponsor's fee of 0.50%. That means roughly seven years of management fees have been taken from NAV, or 3.5%. The web site shows a NAV per SLV in silver of 96.631%. Looks like SLV tracks physical silver reasonably well. Of course, I'm assuming that Barclays aren't lying about the numbers. Attached is a screenshot of the iShares web site for SLV I made just a few minutes ago:

                      2013-03-26_SLV.png

                      The ETFs are good for people who don't require allocated metal and want to trade the precious metals and have available to them the ability to use margin or options without going to the futures markets. That may be one set of reasons why the ETFs are bought instead of going through BullionVault.

                      Comment


                      • #12
                        Re: ETF vs gold and silver

                        call me a rube but i don't see a problem here.

                        roughly 7 years ago slv was 91% the price of an ounce of silver, now it is about 88%. Seems like I am losing about .5% per year which is about the management fee.
                        If you don't like the managment fee you can write a way out-of the-money-call on your shares. If silver moon shots you will loose the big gain, but if we have a nice
                        slow rise, you can over-come the expense drag. Currently you can sell a Jul 33 call on SLV for .15. Just this one transaction will pay for your expenses for the year.

                        I have been doing this with GLD over the last several years. I don't own a lot of either of these (GLD,SLV) with all the clap trap on the internet, I am nervous that the bullion is not held free and clear, or that in an emergency somehow the bank will own the gold and not the fund.
                        I have slightly more faith in the canadian trusts. I don't know if that faith is well founded or not.


                        If we get a hit to oil I will do the same thing with DBO.

                        Now I just read that there has been a large draw down of bullion from the GLD etf. Why??? when are shares destroyed? Is this when the players that can make
                        creation units decide they would rather hold the bullion, than hold the shares?? I don't understand when/why shares are created or destroyed in this ETF.

                        Comment


                        • #13
                          Re: ETF vs gold and silver

                          Originally posted by Milton Kuo View Post
                          According to the iShares web site, SLV has an inception date of April 21, 2006 and a yearly sponsor's fee of 0.50%. That means roughly seven years of management fees have been taken from NAV, or 3.5%. The web site shows a NAV per SLV in silver of 96.631%. Looks like SLV tracks physical silver reasonably well. Of course, I'm assuming that Barclays aren't lying about the numbers. Attached is a screenshot of the iShares web site for SLV I made just a few minutes ago:


                          The ETFs are good for people who don't require allocated metal and want to trade the precious metals and have available to them the ability to use margin or options without going to the futures markets. That may be one set of reasons why the ETFs are bought instead of going through BullionVault.

                          The first day that SLV traded was April 28 2006 according to google. Yahoo also corroborates this as the first day of trade. You are welcome to check my work, but it seems clear that they are lying if they say that they are down 3.5%
                          http://buildengineer.com/itulip/slv.xls

                          I have been looking through the annual reports for CEF and I have the suspicion that they are fudging the numbers. See here:
                          http://www.centralfund.com/annualrep...l%20Report.pdf
                          page 4. the percentages for 1996 do not add up to 100%. In 1998 they use () to indicate that they have a debt. This is not permitted by the articles of incorporation.

                          Other ETFs may be fudging the numbers.

                          To your broader point that people who use these funds expect them to not track the price of the underlying metal. I searched for information about this before I wrote the above piece. This is a typical article I read:
                          http://www.safehaven.com/article/241...tf-mass-exodus
                          just a quote:
                          If it indeed came to pass, gold would almost certainly be considerably lower than we've seen in recent weeks. But it didn't, the stock traders owning GLD didn't panic and rush for the exits as feared. Instead they boldly stood their ground, continuing the long tradition of GLD shares being held in strong hands. GLD's entire history shows its owners largely want gold exposure for the long haul, they aren't flighty.
                          The investing public thinks that GLD=Gold. Many many intelligent people think this. I thought this as recently as last month. If you didn't, I'm glad. Go spread the word. The rest of the world doesn't know it yet. Also, just out of curiosity, how did you find out? I was not able to find a chart like the ones I put here anywhere on the web.

                          Comment


                          • #14
                            Re: ETF vs gold and silver

                            historically, the questions around gld have been focused on the lack of audit and the ability to count as holdings metals [asserted to be] held by sub-trustees. the canadian trusts, otoh, are not technically etfs but closed end mutual funds. they are audited regularly.

                            Comment


                            • #15
                              Re: ETF vs gold and silver

                              Originally posted by globaleconomicollaps View Post
                              The first day that SLV traded was April 28 2006 according to google. Yahoo also corroborates this as the first day of trade. You are welcome to check my work, but it seems clear that they are lying if they say that they are down 3.5%
                              http://buildengineer.com/itulip/slv.xls
                              Evidently the inception date is different from the date the shares were first traded. [Google Finance isn't perfect, though, as it does have faulty data for some stocks.] For the purposes of the calculation of share price against net asset value, 7 days is negligible.

                              It's not clear to me what you're plotting SLV against. My calculations were quite simple:
                              • I assume that 1 share of SLV initially started off as being backed by 1 troy ounce of silver. I compare the current price of 1 share of SLV ($27.77) with the ask spot price of 1 ounce of silver bullion ($28.78). The ratio for these is 27.77 / 28.78 = 0.9649. SLV is trading at a 3.51% discount to bullion, which is right where we expect it to be for 7 years of management fees at 0.50% per year.
                              • Another way you can compare the NAV with the price of spot silver is by looking at the details of SLV from its web site. It claims to have 343,645,323.100 troy ounces of silver backing 355,500,000 shares of SLV. This means that we have 0.9667 ozt / share, which implies a 3.33% loss. Close enough for government work.


                              Originally posted by globaleconomicollaps View Post
                              I have been looking through the annual reports for CEF and I have the suspicion that they are fudging the numbers. See here:
                              http://www.centralfund.com/annualrep...l%20Report.pdf
                              page 4. the percentages for 1996 do not add up to 100%. In 1998 they use () to indicate that they have a debt. This is not permitted by the articles of incorporation.
                              The Central Fund of Canada (CEF), Central Gold Trust (GTU), and the Sprott Physical Gold Trust (PHYS) are closed end funds. That means the security may trade at either a discount or premium to NAV. If I remember correctly, the premium to NAV for CEF has exceeded 10% before. I've run arbitrage trades on GTU and PHYS to take advantage of the differences in premium to NAV to acquire more metal for free.

                              Originally posted by globaleconomicollaps View Post
                              The investing public thinks that GLD=Gold. Many many intelligent people think this. I thought this as recently as last month. If you didn't, I'm glad. Go spread the word. The rest of the world doesn't know it yet. Also, just out of curiosity, how did you find out? I was not able to find a chart like the ones I put here anywhere on the web.
                              The primary reason I knew that GLD was not the same as physical gold was because when I was researching how to buy and store gold, I ended up reading about the differences between pooled gold and allocated gold. This research subsequently made it easy for me to see how GLD was different from owning gold in something like BullionVault. Also, it pays to actually read the prospectus, which most people don't do. Being that there are fees for storing bullion, how could GLD store its bullion without having something akin to an "anti dividend?" It's obvious: it takes a small portion of the bullion in its control as a management fee.

                              Comment

                              Working...
                              X