My understanding is that every time CEF issues some shares and
raises fund, they purchase physical bullion to add to their
holdings. They purchase gold with 1/2 of the dollars raised,
and silver with the other half. If the gold:silver ratio happens to
be 60, then the raise adds 60 oz of silver for every oz of gold. If
the ratio is 40, then this amount translates to 40:1.
The fact that the NAV page currently shows equal percentage of
gold and silver in dollar terms is purely coincidental and entirely
dependent on the price of gold and silver.
They hold a small portion of their holdings in cash and in paper
gold/silver, mainly because they need to cover expenses, and they
issue a small dividend (which qualifies them to be purchased by
many institutional and pension funds).
As they are a closed end fund, the share prices trade either at
a premium or discount. Over the last few years, average premium has
been around 8-10%. Every time the premium exceeds 12-14%, they
issue more shares to make use of the premium, and raise more funds
to buy bullion with. Their share issuance has always
been accretive to shareholders.
Over the last few months, they have been trading at close to
zero premiums and occasionally at a discount. If I recall
correctly, a couple of months ago, they traded at 8% discount for a
few hours (a trade that I missed).
The best time to buy them is when they are trading at a
discount, but be warned that that is a rare event in this bull
market.
A sure trade would be when they are traded at a deep discount
(again very rare), to go long CEF, short GLD.
Unlike the other ETF's, they have been in business for decades
and have a very astute and long-term oriented management.
The bullion is held in Canada (outside the reach of the US
government).
On a separate note, as you are probably aware, GLD is a much
better trading vehicle as it tracks gold price closely, and it has
options. But it should not be used as an investment vehicle because
of the real &/or perceived issues with their custodial
relationships.
Actually, upon closer inspection of the quarterly reports, it
appears they maintained the 50:1 ratio from 2001 up until
1Q11. The 2Q11 report is the first one that strayed from the
50:1 ratio, it is now down to 45:1.
Posted by mamaduck on 17th of Aug 2011 at 02:28 pm
That is correct cufuzzy. Currently CEF has roughly 45 oz of
silver for every oz of gold, which matches the gold silver ratio
(as of yesterday, it was 44.84 or approx. 45)
Now,when you translate it into dollars, they have about 1/2 the
assets in dollar terms in each metal - which I understand to be
their overall philosophy.
No, that's the point I was trying to make. They do not
have a 50/50 dollar split. They have a 50oz silver/1oz gold
split from 2001 up until 1Q11. In 2Q11 they made a 9:1 oz
purchase for the first time I can see bringing the ratio to about
45.44:1. Not sure why they suddenly changed the ratio, but I
can't find the ratio mandated anywhere. I just started
looking into this today, so perhaps you can explain that history to
me better or why the sudden shift in strategy?
The last page of most of these has a pie chart showing the ratio
is 50:1, others you have to do the math yourself to see the
ratio. Always 50:1 in the ones I spot checked up until 2Q11
at 45:1.
First of all, my apologies if I gave the impression that the
50-50 was mandated. Historically it has been a general target and
approach, but because of the price fluctuations, if they mandate
it, then they would have to enter active trading, which defies the
whole point of CEF.
Also as of the prospectus of
the last offering, (see page 10) the board
has authorized approximately 50 oz of silver for every oz of gold
(just as you stated - and I stand corrected). These are for new
purchases resulting from issuance of shares. I am sure as the ratio
changes in favor of silver, the future new issues will reflect that
change.
Also the pie chart on the last page is somewhat distorted. If
you look at the silver portion, it says 50.2% but it shows a less
than 1/2 segment.
Plus if you take the silver and gold prices as of Jan 31, they
were 1334.50, and 28.17. If you then multiply it by the oz in that
report, you will see that there is about $11 million more silver
than gold.
Also on that date, the gold:silver ratio was 47.37, but the pie
chart assumes 50 - which perhaps accounts for the distortion.
Finally, if you look at the NAV figures from yesterday, you will
see that the CEF holdings ratio is 45.4 compared to the price ratio
of 44.46, while there is about $8 million more silver than gold, or
roughly 0.2% more silver than gold, which is well within the weekly
fluctuations of the ratio.
I am not sure how many people are truly interested in CEF but I
have to say that what you two did today (mama and fuzzy) is exactly
what the board is for. You engaged back and forth,
respectfully, and ultimately reached a form of clarity. I am
going to shock some people here but Matt, Steve and myself do not
know every thing about every stock.
I will give you a minute to pick yourselves up off the
floor.
The research you two did was great and I learned from it so
thank you.
Thanks Tom for the kinds words, and thanks mamaduck for the
info. I had overlooked the part of the prospectus that
mentioned the 50:1 ratio for new purchases. That makes their
recent 9:1 purchase even more curious though considering it's the
first time in a decade they strayed from a 50:1 purchase
ratio. I would assume since that was during the parabolic top
they had a hard time getting enough silver. It will be
interesting to see how they maintain the ratio going forward
nonetheless. I spent way too much time looking at this today,
and decided to run it to ground by e-mailing the company as someone
suggested.
I think ounces wise they have way more Silver than Gold but then
when you look at dollar weighted values the assets of Silver and
Gold are roughly an equal percentage of the holdings.
thanks fuzzy. that does show what I was expressing. DO you
know is that equality just a happenstance or is that their
philosophy to maintain and equal dollar weighting between silver
and gold?
Yeah, I have not been able to find it specifically stated
anywhere, but the last page of their quarterly reports always shows
a 1oz gold/50oz silver ratio.
"Investment
Policies &
Restrictions
The investment policy set by the Board of Directors requires
Central Fund to
maintain a minimum of 90% of its net assets in gold and
silver bullion of which
at least 85% must be in physical form. On April 30, 2011,
98.8% of Central
Fund's net assets were held in gold and silver bullion. Of
this bullion, 99.6%
was in physical form and 0.4% was in certificate form.
Central Fund's physical gold and silver bullion holdings may
not be loaned,
subjected to options or otherwise encumbered in any way."
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CEF
Posted by ditch on 17th of Aug 2011 at 09:29 am
CEF was mentioned in last night's newsletter as a gold trust but actually it has more Silver exposure than GLD,IAU,GTU or PHYS.
Mamaduck can explain this better than I.
CEF
Posted by mamaduck on 17th of Aug 2011 at 12:48 pm
My understanding is that every time CEF issues some shares and raises fund, they purchase physical bullion to add to their holdings. They purchase gold with 1/2 of the dollars raised, and silver with the other half. If the gold:silver ratio happens to be 60, then the raise adds 60 oz of silver for every oz of gold. If the ratio is 40, then this amount translates to 40:1.
The fact that the NAV page currently shows equal percentage of gold and silver in dollar terms is purely coincidental and entirely dependent on the price of gold and silver.
They hold a small portion of their holdings in cash and in paper gold/silver, mainly because they need to cover expenses, and they issue a small dividend (which qualifies them to be purchased by many institutional and pension funds).
As they are a closed end fund, the share prices trade either at a premium or discount. Over the last few years, average premium has been around 8-10%. Every time the premium exceeds 12-14%, they issue more shares to make use of the premium, and raise more funds to buy bullion with. Their share issuance has always been accretive to shareholders.
Over the last few months, they have been trading at close to zero premiums and occasionally at a discount. If I recall correctly, a couple of months ago, they traded at 8% discount for a few hours (a trade that I missed).
The best time to buy them is when they are trading at a discount, but be warned that that is a rare event in this bull market.
A sure trade would be when they are traded at a deep discount (again very rare), to go long CEF, short GLD.
Unlike the other ETF's, they have been in business for decades and have a very astute and long-term oriented management.
The bullion is held in Canada (outside the reach of the US government).
On a separate note, as you are probably aware, GLD is a much better trading vehicle as it tracks gold price closely, and it has options. But it should not be used as an investment vehicle because of the real &/or perceived issues with their custodial relationships.
I hope this helps.
CEF
Posted by cufuzzy on 17th of Aug 2011 at 02:09 pm
Actually, upon closer inspection of the quarterly reports, it appears they maintained the 50:1 ratio from 2001 up until 1Q11. The 2Q11 report is the first one that strayed from the 50:1 ratio, it is now down to 45:1.
http://www.centralfund.com/quarterlyreports/2011%20Quarterly%20Reports/CFOC%20-%202nd%20Quarter%20Report%202%20June%2011.pdf
(Edit: to clarify that's the ratio of silver oz to gold oz.)
CEF
Posted by mamaduck on 17th of Aug 2011 at 02:28 pm
That is correct cufuzzy. Currently CEF has roughly 45 oz of silver for every oz of gold, which matches the gold silver ratio (as of yesterday, it was 44.84 or approx. 45)
Now,when you translate it into dollars, they have about 1/2 the assets in dollar terms in each metal - which I understand to be their overall philosophy.
CEF
Posted by cufuzzy on 17th of Aug 2011 at 02:40 pm
No, that's the point I was trying to make. They do not have a 50/50 dollar split. They have a 50oz silver/1oz gold split from 2001 up until 1Q11. In 2Q11 they made a 9:1 oz purchase for the first time I can see bringing the ratio to about 45.44:1. Not sure why they suddenly changed the ratio, but I can't find the ratio mandated anywhere. I just started looking into this today, so perhaps you can explain that history to me better or why the sudden shift in strategy?
The last page of most of these has a pie chart showing the ratio is 50:1, others you have to do the math yourself to see the ratio. Always 50:1 in the ones I spot checked up until 2Q11 at 45:1.
http://www.centralfund.com/quarterlyreports/2011%20Quarterly%20Reports/CFOC%20-%201st%20Quarter%20Report%20FINAL%201%20MAR%20%2011.pdf
http://www.centralfund.com/Financials.htm
CEF
Posted by superdupa on 17th of Aug 2011 at 03:44 pm
Call them and ask I have found them very open and willing to talk
CEF
Posted by mamaduck on 17th of Aug 2011 at 03:20 pm
First of all, my apologies if I gave the impression that the 50-50 was mandated. Historically it has been a general target and approach, but because of the price fluctuations, if they mandate it, then they would have to enter active trading, which defies the whole point of CEF.
Also as of the prospectus of the last offering, (see page 10) the board has authorized approximately 50 oz of silver for every oz of gold (just as you stated - and I stand corrected). These are for new purchases resulting from issuance of shares. I am sure as the ratio changes in favor of silver, the future new issues will reflect that change.
Also the pie chart on the last page is somewhat distorted. If you look at the silver portion, it says 50.2% but it shows a less than 1/2 segment.
Plus if you take the silver and gold prices as of Jan 31, they were 1334.50, and 28.17. If you then multiply it by the oz in that report, you will see that there is about $11 million more silver than gold.
Also on that date, the gold:silver ratio was 47.37, but the pie chart assumes 50 - which perhaps accounts for the distortion.
Finally, if you look at the NAV figures from yesterday, you will see that the CEF holdings ratio is 45.4 compared to the price ratio of 44.46, while there is about $8 million more silver than gold, or roughly 0.2% more silver than gold, which is well within the weekly fluctuations of the ratio.
I am not sure how
Posted by tom on 17th of Aug 2011 at 03:31 pm
I am not sure how many people are truly interested in CEF but I have to say that what you two did today (mama and fuzzy) is exactly what the board is for. You engaged back and forth, respectfully, and ultimately reached a form of clarity. I am going to shock some people here but Matt, Steve and myself do not know every thing about every stock.
I will give you a minute to pick yourselves up off the floor.
The research you two did was great and I learned from it so thank you.
CEF
Posted by cufuzzy on 17th of Aug 2011 at 05:16 pm
Thanks Tom for the kinds words, and thanks mamaduck for the info. I had overlooked the part of the prospectus that mentioned the 50:1 ratio for new purchases. That makes their recent 9:1 purchase even more curious though considering it's the first time in a decade they strayed from a 50:1 purchase ratio. I would assume since that was during the parabolic top they had a hard time getting enough silver. It will be interesting to see how they maintain the ratio going forward nonetheless. I spent way too much time looking at this today, and decided to run it to ground by e-mailing the company as someone suggested.
thanks mama, one for the
Posted by tom on 17th of Aug 2011 at 12:52 pm
thanks mama, one for the radar for sure. I would appreciate you posting any future discountings you see
I think ounces wise they
Posted by tom on 17th of Aug 2011 at 09:35 am
I think ounces wise they have way more Silver than Gold but then when you look at dollar weighted values the assets of Silver and Gold are roughly an equal percentage of the holdings.
CEF NAV premium down lately too...
Posted by cufuzzy on 17th of Aug 2011 at 09:48 am
http://www.centralfund.com/Nav%20Form.htm
thanks fuzzy. that does show
Posted by tom on 17th of Aug 2011 at 10:19 am
thanks fuzzy. that does show what I was expressing. DO you know is that equality just a happenstance or is that their philosophy to maintain and equal dollar weighting between silver and gold?
My understanding is they keep
Posted by its44me on 17th of Aug 2011 at 10:24 am
My understanding is they keep a fixed ratio ounces of gold to silver, regardless of the prices of the metals
CEF
Posted by cufuzzy on 17th of Aug 2011 at 10:50 am
Yeah, I have not been able to find it specifically stated anywhere, but the last page of their quarterly reports always shows a 1oz gold/50oz silver ratio.
"Investment
Policies &
Restrictions
The investment policy set by the Board of Directors requires Central Fund to
maintain a minimum of 90% of its net assets in gold and silver bullion of which
at least 85% must be in physical form. On April 30, 2011, 98.8% of Central
Fund's net assets were held in gold and silver bullion. Of this bullion, 99.6%
was in physical form and 0.4% was in certificate form.
Central Fund's physical gold and silver bullion holdings may not be loaned,
subjected to options or otherwise encumbered in any way."