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XMFSinchiruna (27.80)

Tale a long, hard look at CEF and RGLD

Recs

18

April 08, 2009 – Comments (19) | RELATED TICKERS: CEF , RGLD

More to come later as I am busy writing, but these are timely, so I just wanted to toss the suggestion out there.

I have always pointed out the significance of these non-dilutive CEF shares issuances, so please look back through my archives for what I'm getting at.

RGLD, meanwhile, has basically picked up 1 million ounces of gold for less than $260 per ounce.

Background info on RGLD.

19 Comments – Post Your Own

#1) On April 08, 2009 at 12:59 PM, mustbepatient (29.42) wrote:

Sinchiruna,

We discussed earlier this week about the 15-17% premium investors are paying on CEF's NAV. Basically, as of yesterday shares were only worth 9.75 (in terms of NAV), but CEF will be adding bullion to the fund at 10.50 per share.  If investors stay as irrational in paying a 17% on whatever CEF holds, this deal should actually make the price go up!

 

I still maintain that these premiums are unsustainable, but I have no idea when they will deflate.

As far as RGLD, they have always been expensive to me.  Paying a premium for the marquee stock doesn't fit my personality.  At the moment I own ROY instead, and suggest that you look into it.

Regards

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#2) On April 08, 2009 at 1:10 PM, XMFSinchiruna (27.80) wrote:

mustbepatient

I own ROY too, but RGLD is no longer expensive at $38... trust me. :)

CEF's premium was cut in half by the announcement of the non-dilutive share offering, and this offering is larger in scale than most. The next rise in gold's price will absorb much of the premium... remember that part of the premium formula is formed by CEF holders who refuse to sell no matter the price until gold and silver have their long-awaited runs. CEF, in particular I would say, attracts this type of investor.

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#3) On April 08, 2009 at 1:36 PM, speedybure (< 20) wrote:

I agree with you about royal gold. I also like franco nevada which is attractive at these levels. They have 300 total royaly streams, 88 of which are in operation, with 20-25 more coming online within the next 12 months? Any one's thoughts?? They, however, are about 70% precious metals, 24% oil, and 6% potash. 

I like Roy as well after having taken a look but i'm hestistant at the moment due to the fact a large portion of their revenue comes from 1 stream. it is a penny stock so the downside negates that effect.

I think the best royalities in order are: rgld, fnv.to, roy

As for silver I think silver wheaton is now the clear winner after buying out (pending regulator approval) their competitor silverstone. This gives the three immediate streams which will produce 4-5m/oz this year is closed in may as expected. 

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#4) On April 08, 2009 at 1:43 PM, kaskoosek (73.49) wrote:

Sinch

I agree with you fundamentally, but I think that the timing is not that good.

Seems to me a bit peakish.

 

Anyway I suppose that currently there are better hedges than gold which are less risky (volatile).

Maybe Real estate, or a stock like PM.

 

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#5) On April 08, 2009 at 2:35 PM, XMFSinchiruna (27.80) wrote:

kaskoosek

Peakish? RGLD is a whole lot less "peakish" not at $38 than it was above $49 at the end of 2008. Short-term volatility is meaningless for those investors maintaining a fixed focus upon the multi-year secular bull market for precious metals. Will RGLD see $30 again before the next launch of gold? Extremely doubtful IMO, but I suppose within the realm of possibility if the manipulators manage to exercise sufficient control over the whole mess. Will it hit $100 before the end of this bull market in gold? Now there's a highly probable scenario in my opinion.

Real estate as a hedge? A hedge against what, exactly? OMG... real estate values will continue to plunge in this country for at least another year or two, with at least another 50% of potential downside in the process. Phillip Morris? Fine in a typical recession, sure... but the $1/pack tax can't be helping consumption any.

You want a non-volatile hedge? Good luck. :) Volatility in gold abd silver will increase substantially going forward, where I expect multi-$100 daily swings in gold to become commonplace. Rather than seeking to avoid the volatility, I encourage investors to embrace it. Buy low, sell high, but always hold onto a significant core position and reassess once we're looking from the other side of $2,000 gold.

speedybure

Franco Nevada sounds great, but many of us (including myself) do not have access to foreign-listed equities that are not cross-listed in the U.S. You mentioned, I think, that they are available through pink sheets, but I don't even see that option listed with my broker. I appreciate you bringing the company to my attention, though. RGLD and Franco-Nevada hardly comparable in terms of market cap, though, with RGLD at $1.3 billion to Franco's $25 million. Even little ROY is 6X bigger by that measure.

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#6) On April 08, 2009 at 3:57 PM, mustbepatient (29.42) wrote:

Sinch, if you are confident gold is going to $2000 (with silver at, say, $100), why bother with RGLD?  Shouldn't you be buying in-the-ground assets at $10-$20 an ounce via juniors that are marginal at $1000 gold/$13 silver?  *If* your scenario comes to pass, I think RGLD goes up 3X from here while juniors current priced at $10-$20 an ounce go up 10-20X.

 

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#7) On April 08, 2009 at 5:08 PM, XMFSinchiruna (27.80) wrote:

Here's my article on the RGLD purchase.

mustbepatient

I could hardly be more confident about the $2,000 target (at which point I would expect silver at $50 rather than $100), and that factors into my rationale for being quite heavily allocated already into the juniors and exploration companies. However, I have always advocated a diversified basket of pm exposure to reduce risk. The companies that are, as you say, marginal near $1,000 remain at risk for as long as these levels are in play... so of course full allocation into the juniors would therefore be foolhardy. I remember all too well the pessimism which prevailed in October and November of last year regarding the number of companies that would fail to outlast the correction. To some extent, not all of them are out of the woods yet.

Because of their reduced leverage to the metal prices, I have always advocated lighter allocation in the majors like Barrick and Newmont (indeed, I don't recommend ABX at all!). The greatest balance between risk and reward ... between leverage and stability ... in my opinion lies among the intermediate producers.I place the well-known players like AEM and AUY at the top of that group because of their projected organic growth and low cost profiles, but consider the large group of lesser intermediates a similarly crucial element of a well-honed basket.

I hold more than 50 precious metal equities in real life, so my basket is indeed diversified. Thanks for the question. In the context of your question, bullion holdings like CEF might be perplexing,and yet that remains -- and will remain -- my single largest holding throughout the remainder of the bull market. Because a year like 2008 is always possible within an event like this, and we could see similar action in the future, for example, in a pull-back from $1,650 back down to $1,200 or even lower... a more stable holding like CEF always has a place in my portfolio.

Lastly, I am not intent on maximizing profit, but rather upon maximizing my ability to maintain capital through this financial crisis. Capital appreciation is like a bonus... well received, but not the primary goal here.

 

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#8) On April 08, 2009 at 7:51 PM, speedybure (< 20) wrote:

I appreciate your comments. If you want to see ignorance at its best click http://caps.fool.com/Blogs/ViewPost.aspx?bpid=177860&t=01008068464120916446 to see my comments, the write is a keynsian, it the one entitiled inflation is a good thing

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#9) On April 08, 2009 at 10:42 PM, eddietheinvestor (< 20) wrote:

In addition to--or instead of--RGLD, what do you think about an investment in GLD?

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#10) On April 08, 2009 at 11:23 PM, XMFSinchiruna (27.80) wrote:

esterlin

I am 100% opposed to GLD as a proxy for bullion. I will be outlining my rationale more completely in the days to come. CEF is far superior to GLD because they time their bullion purchases to match dips in prices. The added silver exposure makes CEF the perfect bullion proxy. GLD scares me... details to follow.

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#11) On April 09, 2009 at 2:31 AM, speedybure (< 20) wrote:

Franco-nevada has a 1.95 billion market cap. I know that info is hard to find sometimes. It traded at 19.47 and has 100m shares out. I brought it up only because i've noticed its less volatile because it has a blend of gold,silver,oil,potash royalties

I also buy on the australian exchange, I own Lihir. Anythoughts on the latter? it trades here as well and will be a 1m oz producer in 09. It's a turnaround story which has become more compelling. I rarely see this name brought up, so its worth a mention. 

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#12) On April 09, 2009 at 6:57 AM, CanZen (21.28) wrote:

Hi Christopher,

Thanks for your post(s).  I am looking to various options like CEF and AUY for PM exposure, but I am somewhat confused by the mixed messaging out there.  On one hand we have people like Roubini talking about deflation as a key driver over the next couple of years and that he for that reason, and because he doesn't expect an all-out depression, is bearish on gold.  Also have elliot wave and TA folks talking about near term decline to below 700 for gold and maybe further.  Any thoughts on these contrarian views?

 Also, do you have any suggestions for exposure to oil as a commodity vs. producers?

 Cheers,

Jeremy

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#13) On April 09, 2009 at 8:40 AM, XMFSinchiruna (27.80) wrote:

CanZen

Yes, there are a lot of disenting opitions about the macro view. I am resolutely in the stagflation camp. I think most people fail to understand the dynamics of the global currency crisis presently underway. Roubini doesn't expect an all-out depression.... that makes him foolhardy, IMO. The evidence is stacked like a Himalayan peak in every direction. We don't need demand-driven asset price increases to drive gold prices... gold price increases will be related to the currency event... irrespective of economic conditions in the U.S.

I suggest you read this article for my take on the TA-related discussion of gold. It links to a blog post by GV, and you'll find more of my comments there as well. See comment #163 to this post on GV's blog as well.

My suggestion regarding opil exposure... there is no substitute for actual futures contracts if you're looking to hold exposure to oil. USO is a derivatives-based sham, and has repeatedly failed to track oil's movements over the past several years.

 

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#14) On April 09, 2009 at 7:50 PM, speedybure (< 20) wrote:

Jeremy - You should read a book by henry hazzlitt. It is called 

"Bretton Woods to World Inflation". As the above post mention the fact most people don't understand the global currency crisis, . I will give you a link for the book if you choose.

One more thing: How can there be deflation if there is an exponential amount of money being printed in a recession. In other words more dollars are chasing fewer goods. Asset prices are dropping because the asset bubble popped.

I don't personally own this but the (RJI) is an etf replication of jim rogers (king of commodities) index.

- I hope any of my rambling was of any help 

 

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#15) On April 10, 2009 at 10:39 AM, CanZen (21.28) wrote:

Eric Sprott and Roubini prior to the "Night of the Bears" in Toronto.  A discussion on gold, probably nothing to new to folks here, but for me it's another bullish sign for gold when Eric Sprott tells us he is buying

 http://watch.bnn.ca/the-close/april-2009/the-close-april-7-2009/#clip158793

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#16) On April 10, 2009 at 10:47 AM, CanZen (21.28) wrote:

Should mention also that there are three parts:

 http://watch.bnn.ca/the-close/april-2009/the-close-april-7-2009/#clip158804

http://watch.bnn.ca/the-close/april-2009/the-close-april-7-2009/#clip158840

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#17) On April 10, 2009 at 1:27 PM, oversea (< 20) wrote:

Sinchiruna,

lately I sold all my NGD, AUY and FCX shares because I felt they had lost steam. I had really excellent gains and I'm happy with them. I have kept base metals miners and oil amongst the others, because I believe that commodities will be the first to raise when all this will be over. Nevertheless, as  CanZen points out, gold's and silver's future looks grim according to TAs, while copper's run looks tired I add. This grim future is not  unreasonable for gold which hasn't the industrial uses silver has. We shouldn't forget that the big gold buyers (e.g. India) ran out of money. If we look at gold miners' TAs, I must say  they look bad indeed. Surprisingly only SLW's TA looks promising, possibly because SLW is involved in other commodities.  Am I correct? I know that you, like many others and me as well, aren't entirely happy with TA and EWT. I don't believe it blindly, but I consider it a useful tool and food for thought, like many other financial tools (magazines, and sites such as this one). So I believe that ignoring them is not very wise. You say that you believe that stagflation will set in, yes, but on which data do you suggest this instead of a more "common" inflation? Yes I've read your posts on GV's blog, but I'm not really convinced by them. And another question for you: it escapes me why generally speaking financial advisors are furiously against gold/silver miners even when they are clearly at bargain prices (like they were last autumn). Yes miners don't always give a dividend, they are risky etc, but really not more than other financial tools such as ETFs on which my advisors are keen instead.

Regards

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#18) On April 10, 2009 at 4:11 PM, CanZen (21.28) wrote:

My question is really more about timing.  I think with a near term continuation of the rally, which will likely continue into June at least based on TA as well as general sentiment.  I know that Sinch is really more concerned about the macro picture, and from what I can tell, the thesis on gold is strong.  But TAers and many others seem to agree for the next few months the rally will continue and retrace approximately 50%.  This is typicall of bear market rallies and could provide a better buy point for gold would it not?  I do believe that the situation will get much worse in the coming year and that gold will be supported both by a general fear from the masses, a mob mentallity perhaps towards gold, and the prospect of huge inflation once we start working our way out of recession.  But will that entry point come or is the situation now a powder keg that could go off without waiting for strong signals from the market.  Eric Sprott mentioned he had been buying gold lately and that would lead me to believe that other managers will be doing so in the near terms as well.

 

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#19) On April 11, 2009 at 11:43 PM, CanZen (21.28) wrote:

More from Eric Sprott:

Another way to look at quantitative easing is as a government-induced pyramid scheme. By all accounts, US government bonds are already very expensive. The unwinding of leverage that has been occurring over the past year created enormous demand for the US dollar and US treasuries – demand that was more technical than fundamental in nature. Through quantitative easing, the government is ensuring that an already expensive asset becomes even more expensive. Does this sound familiar, when an over-priced asset becomes even more over-priced? That’s right, it’s called a bubble. In order to save the economy and the financial system the government once again, as is its wont to do, is replacing one bubble with another. It’s the same old shtick. One that will end as badly, and likely far worse, than the previous bubbles. We would advise investors not to be the last suckers out of this pyramid scheme....

In our opinion, the only way that people can protect themselves against the money printing binges the world is currently experimenting with, is by investing in tangible assets. In this regard, the only truly AAA asset is gold. As the saying goes, all roads lead to Rome. Week after week, no matter what we look at, all the evidence and all the signposts point to the same conclusion: own gold. Government guarantees can only redistribute wealth at best, destroy it at worst, but never can they create it or guarantee the real value of paper financial assets. When the government wants to buy your financial assets we would suggest that you sell to them, with a thank you, and use the proceeds to buy real tangible assets. In our opinion, this is the only way to guarantee the preservation of your wealth.

http://www.sprott.com/pdf/marketsataglance/MAAG.pdf

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