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XMFSinchiruna (27.12)

Your Chance to Grab Some PHYSical Gold

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May 26, 2010 – Comments (52) | RELATED TICKERS: CEF

Some of you might be wondering why PHYS is down more than 7% intraday today on an up-day for gold, and the reason is that it's a gift from gold gods. :P

Seriously, though, let's talk about what's going on here.

The premium built into PHYS shares over recent weeks -- that is, the difference between the net asset value of its gold holdings and the traded market value of shares outstanding -- had grown to rather epic excess recently as investors clamored to get into this new and more reliable gold proxy as a welcome alternative to the highly questionable GLD.

Those of you who have followed my coverage of the sector for the past several years will recall the number of times I have called to your attention the share offerings in CEF as timely opportunities to go long the shares. For existing shareholders, the temporary erasure of the premium is not a source for concern, since these share offerings in both CEF and PHYS are non-dilutive. In fact, they are welcome developments to holders because costs decrease as the scale of the closed-end funds grows. CEF recently performed a share offering of its own, and now PHYS has followed suit with an offering of almost 25 million new shares. What this means is that the fund intends to buy some $280 million worth of gold over the coming weeks, which is not an unwelcome development in the gold market.

The premiums are themselves a bullish signal in these closed-end funds, indicating that demand exceeds supply.

Any questions? I will be busy today, so I may have to defer answers until tomorrow, but please take notice of my reminder that share offerings in reliable closed-end bullion funds represent compelling entry points.

Got gold?

Long and strong,

Sinch

 

http://finance.yahoo.com/news/Sprott-Physical-Gold-Trust-iw-2690625905.html?x=0&.v=1

Sprott Physical Gold Trust (the "Trust") (TSX:PHY.U - News)(NYSE:PHYS - News), a trust created to invest and hold substantially all of its assets in physical gold bullion and managed by Sprott Asset Management LP, has priced its follow-on offering to the public (the "Offering") of 21,600,000 transferable, redeemable units of the Trust ("Units"). As part of the Offering, the Trust has granted the underwriters an over-allotment option to purchase up to 3,240,000 additional Units.

The Units have been priced at US$11.25 per Unit. The gross proceeds from the Offering will be US$243,000,000 (US$279,450,000 if the underwriters exercise in full the over-allotment option).

The Trust intends to use the net proceeds of this Offering to acquire physical gold bullion in accordance with the Trust's objective and subject to the Trust's investment and operating restrictions described in the prospectus related to this Offering. The net proceeds of the Offering per Unit will be greater than 100% of the most recently calculated net asset value per Unit of the Trust prior to pricing of the Offering, which is required under the trust agreement governing the Trust.

 

52 Comments – Post Your Own

#1) On May 26, 2010 at 10:41 AM, JakilaTheHun (99.93) wrote:

PHYS is a terribly designed investment vehicle:

http://seekingalpha.com/article/206320-seriously-the-spdr-gold-trust-isn-t-a-scam-but-phys-might-be

 http://seekingalpha.com/article/191523-sprott-physical-gold-trust-not-really-a-gold-etf-and-a-bad-deal-to-boot

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#2) On May 26, 2010 at 10:47 AM, XMFSinchiruna (27.12) wrote:

JakilaTheHun

No, it is not. You are very much mistaken.

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#3) On May 26, 2010 at 10:49 AM, XMFSinchiruna (27.12) wrote:

The author of the second piece certainly displayed his ignorance for all to see:

"For instance, as with all closed-end funds, there is no way for PHYS to issue new shares, which means there is effectively no way for the security to actually track the price of gold."

Hmmm ... I could swear the fund just announced the issuance of 25 million new shares.

:)

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#4) On May 26, 2010 at 10:53 AM, portefeuille (99.66) wrote:

#1 This hasn't stopped a flood of security-obsessed gold bugs from swarming the fund.

I like that sentence ...

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#5) On May 26, 2010 at 10:53 AM, binve (< 20) wrote:

Sinch, exactly man (at comment #3). The way PHYS is going about issuing new shares seems to be a very similar process to how CEF issues new shares. Thanks again for another great post!

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#6) On May 26, 2010 at 10:59 AM, XMFSinchiruna (27.12) wrote:

JakilaTheHun

The first article you cited offer zero evidence to support its claim that GLD is not a scam, whereas I have presented my rationale for avoiding the ETF with plentiful supporting evidence.

The case she makes against PHYS is primarily cost-based ... perhaps in our present system it does indeed cost more to gain reliable gold exposure that is not under the custodianship of the market's largest institutional shorts playing derivative games in a 100:1 leveraged market.

This author also repeats the same falsehood as the other:

"Since it's closed-ended, PHYS can't ever issue new shares."

Categorically false, and indicative a real lack of understanding of the topic.

Unimpressive dribble from the pair of them.

Those who fail to heed my cautions regarding GLD are in for a rude awakening when the leverage game unravels. Mark my words.

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#7) On May 26, 2010 at 11:01 AM, XMFSinchiruna (27.12) wrote:

binve

Yes, only on a grander scale, which becomes bullish for bullion prices when excessive premiums indicate pent up demand. $280 million is enough to move prices.

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#8) On May 26, 2010 at 11:04 AM, JakilaTheHun (99.93) wrote:

Those who fail to heed my cautions regarding GLD are in for a rude awakening when the leverage game unravels. Mark my words.\

Your words are marked, conspiracy boy. 

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#9) On May 26, 2010 at 11:19 AM, XMFSinchiruna (27.12) wrote:

JakilaTheHun

Do not presume to label me with mindless judgements of the sort.

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#10) On May 26, 2010 at 4:05 PM, Jimmy2008 (< 20) wrote:

Sinchi,

A couple of questions:

1. GDX, GDXJ and SIL: Do they have real assets (underlying stocks) or they are derivative-based?

2. SIVR: Does it have real physical silver?

3. Surprised that you have GLD and SLV in your CAP portfolio.

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#11) On May 26, 2010 at 6:23 PM, TeslaPowered (< 20) wrote:

Well, as a shareholder of CEF, GTU and PHYS, a word of caution.  Apparently these MAY qualify as PFIC's, which APPARENTLY require you to file a QEF, or else...???  That's what I'm trying to figure out...I've put in inquiries with the IRS, and a tax professional...neither had a clue what form 8621 was, and they're trying to get me an answer for whether I'm required to file one.  The problem is, I've already submitted my 2009 return, so if I have to file this 8621, I assume I'll have to amend my return, and it doesn't seem like you can retroactively file a QEF.  If that's the case, the best case scenario seems to be unfavorable tax treatment...worst case may be a fine, who knows.  

Argh...I hate paperwork.  Should've just bought the real thing, I know better.  

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#12) On May 26, 2010 at 7:02 PM, Robuh (23.70) wrote:

Yes, they may qualify as PFIC's and it can be very bad news for you Yanks if the IRS decides to have some fun. As I understand it if you don't file properly the first year you own CEF/GTU then you can get taxed on 100% of your profits at the highest tax rate for all subsequent years. And I don't mean your marginal tax rate but rather the highest tax rate available within your tax system.

Anyone in the States thinking of investing in CEF or GTU should really contact a tax professional. You may be leaving yourself up to a very large tax liability. 

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#13) On May 26, 2010 at 7:12 PM, Robuh (23.70) wrote:

I don't really have anything bad to say about PHYS except for the fact that the premium gets really whacky.

I will say this. Anyone thinking about investing in CEF, GTU, or PHYS absolutely has to understand how the premium works when making your "investment" (ha ha ha)

There are also really great ways to make pair trades by shorting certain instruments and buying others when premiums move in extreme directions.

If you're buying this stuff without knowing where you are in terms of premium you should stay out.

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#14) On May 26, 2010 at 7:27 PM, TeslaPowered (< 20) wrote:

Robuh, any idea what happens if you've held it for less than a year?  Some of my purchases are over a year old, some less than a year old.  So far everything is unrealized, but from what I understand, that may not matter.  I don't really care about unfavorable tax treatment, I'm committed to moving into physical, I just don't want to be on the hook for any penalties. 

Again, I should've known better, but it's pretty damn confusing...I've spoken to three different people at the IRS, and one tax professional...

IRS #1 - "I've never heard of this form, let me bring it up...*on hold*...okay, this is a very complicated form, and beyond our scope, I suggest you contact a tax professional."

Tax Pro #2 - "I've never seen this form before...how does it work?"  Duh, that's why I'm here.  She's going to ask the other associates there.

IRS #2 - "Never heard of it...*on hold*...we are allowed to invest in foreign companies, do you own more than 50% of this CEF?  No?  I don't think you have to file, what I'm seeing is it applies to real estate holdings...you could file the 8621, but if you're not required to, you may be audited."

IRS #3 - "I'm not familiar with this form"...then she asks me if I'm a citizen about 4 different times...eventually we created a case code, so I should hear something within 15 days.  

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#15) On May 26, 2010 at 7:44 PM, Robuh (23.70) wrote:

Wow, this is totally not my area and I may be completely wrong but as I understand it you still need to do the QEF election on 8621 even if you hold CEF/GTU/PHYS for less than a year. I believe it then gets taxed as a capital gain or loss.

If you don't do the QEF election in the first year then I think you could be quite screwed. 

However, in my completely uninformed opinion, I think it is very unlikely that an audit will result in severe penalties against you (by law, you could be up against much more severe penalties than you may think.) You'd have to be up against an auditor fluent in PFIC rules and that is probably not going to be the case. 

I believe that the statute of limitations for this situation is 3 years so you can just sweat it out for awhile if you never plan to invest again. However, if you're into any of these Canadian gold proxies for the long term I'd get some professional advice (good luck with that.) It's probably best to hold it in a sheltered account like an IRA so you don't need to worry about it.

Again, I must completely and utterly stress than I am not a professional in matters such as this.

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#16) On May 26, 2010 at 7:49 PM, 100ozRound (29.44) wrote:

TeslaPowered

see here:

http://www.rpifs.com/AICPA/form8621.htm

Though I can't vouch for the accuracy of this website.

and after looking at 8621, I'd say it is severely complicated.

Good luck!!

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#17) On May 26, 2010 at 8:00 PM, TeslaPowered (< 20) wrote:

Yeah, I came across that earlier.  GTU doesn't have a distribution (unless unrealized gains are considered distributions), but CEF has a stupid $0.01 dividend.

I'm new to investing...just surprised that neither of my online brokers made any mention of this form when I received Schedule D.  My tax software can't even process this form, even had I known about it. 

I'm wondering if I should just liquidate now and deal with everything afterwards.  

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#18) On May 26, 2010 at 8:16 PM, Robuh (23.70) wrote:

Distributions aren't the issue. If you purchase a PFIC and sell it for a gain then those gains can be taxed at the highest income levels in effect for each of the years (I think the gains get split evenly) that you held the security and you will get charged interest for the back taxes. On top of that you could get fined a whole whack of money (upwards of $10,000) and even do prison time. 

This is all really fantasy land stuff though. I very much doubt anyone here knows exactly what your liability is. 

And I doubt you will ever see this form on your tax software. I don't know anyone that could write the code to support it. 

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#19) On May 26, 2010 at 8:29 PM, TeslaPowered (< 20) wrote:

10K and prison time for buying something on a U.S. exchange and not knowing about an obscure form?  I'm going to cry myself to sleep now. :(

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#20) On May 26, 2010 at 8:45 PM, Robuh (23.70) wrote:

I really wouldn't worry about it if I were you. However, if I was an American citizen and owned a large amount of CEF/GTU for the past 8 years in a taxable account I would be extremely afraid. All these gold lunatics talk about the federal government confiscating your gold. Letting the IRS hounds loose on you for this would be far easier to do. If you sold your CEF for a $50,000 gain after that time period you may actually wind up owing the government more than $50,000 in taxes plus owe $10,000 per year in fines. Very scary stuff.

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#21) On May 26, 2010 at 8:51 PM, TeslaPowered (< 20) wrote:

Well, my unrealized gains right now between CEF/GTU/PHYS are about 1K.  Longest hold is 15 months. 

Think I'll find a tax pro who knows what they're doing, pay them a boatload of money, get things straightened out, and then either stick to U.S. stocks or get out of stocks entirely.  

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#22) On May 26, 2010 at 8:51 PM, TeslaPowered (< 20) wrote:

Well, my unrealized gains right now between CEF/GTU/PHYS are about 1K.  Longest hold is 15 months. 

Think I'll find a tax pro who knows what they're doing, pay them a boatload of money, get things straightened out, and then either stick to U.S. stocks or get out of stocks entirely.  

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#23) On May 26, 2010 at 9:04 PM, Robuh (23.70) wrote:

I'll almost guarantee you that you'll spend more than $1,000 in getting this fixed. I've seen estimates of it taking anywhere from 10-20 hours of billable hours for a qualified tax professional to fill out 8621. Even if you decide to pay tax at the PFIC rate (as opposed to submitting an amended 2009 return with QEF election, which I don't think would work anyways) I think you'd still need to fill out 8621. 

Unless they really wanted to ding you for the $10K fine (unlikely) you could consider just treating the disposition of shares as a non-PFIC sale and start a 3 year countdown clock in your office. You could put a little piece of chocolate aside for each of the 36 months like an advent calendar at Christmas.

 

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#24) On May 26, 2010 at 9:10 PM, TeslaPowered (< 20) wrote:

I just don't understand where this liability comes from.  How am I benefitting from these unrealized gains?  Obviously I'd pay tax if and when I sell, turning it into an realized gain.

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#25) On May 26, 2010 at 9:22 PM, Robuh (23.70) wrote:

The problem occurs when you realize the gain. When you sell the shares then you have to claim it as a PFIC sale which I think means you have to fill out 8621 to report the sale. You then will have to pay tax at the PFIC rate which is very high but with only a $1,000 gain it's not that big a deal for you specifically.

The problem is that filling out form 8621 is an incredibly bad situation to be in. It costs a lot of money for a professional to do it and if you don't do it you could leave yourself open to fines. 

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#26) On May 26, 2010 at 9:32 PM, 100ozRound (29.44) wrote:

wait a second; you haven't realized a gain yet?

I would imagine that your broker would be required to withhold some (if not all) of your tax liability for you?!  Maybe...

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#27) On May 26, 2010 at 9:35 PM, TeslaPowered (< 20) wrote:

Okay...hypothetical...what if all those shares go down, and I sell them for a loss?

And by the sounds of it, paying someone to complete the 8621 (presumably for 2009+2010) will resolve the situation?  If it costs me a grand or two, that's not bad.  I'd rather not live with something like that looming over me...even today I was useless at work, worrying about this.   

100ozRound, that's correct, I have NO realized gains from CEF/GTU/PHYS.  How would my broker withhold liability?  That doesn't sound right.  

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#28) On May 26, 2010 at 9:41 PM, 100ozRound (29.44) wrote:

If you haven't realized a gain then you can't claim a capital gain and incur a tax.  So you should be ok. But check with a tax advisor/somebody smarter than me just to be safe.

If you sell it for a loss or a wash, then you shouldn't incur a tax liability at all.

And I am wrong about your broker withholding liability.  I was remembering that my broker takes a foreign withholding for foreign dividends paid out. It's a foreign tax (Canadian - AUY)

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#29) On May 26, 2010 at 9:47 PM, Robuh (23.70) wrote:

Tesla, in no way would I ever advocate breaking any laws but I really would not worry about this if I were you. If this is a big concern for you I would consider immediately selling the shares and contacting your broker.

In your dealings with the IRS you weren't even able to reach someone knowledgable in this form. If in the event you were audited I doubt they would even know that CEF/GTU/PHYS were PFICs or how PFIC rules even worked. Even if they did know it's unlikely that they would fine you.

Like I said earlier, if I had $50,000 in unrealized gains over an 8 year period I would be *very* concerned. In your case I would just claim it on your schedule D.

I think it's a very good idea to contact your broker to see how they will wind up reporting the sale to the government. You definitely want your numbers and theirs to match so no red flags come up. I'd probably start there. 

Again, don't worry. It really will work out okay. 

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#30) On May 26, 2010 at 9:48 PM, TeslaPowered (< 20) wrote:

Yeah, you can't claim a capital gain, but I think what Robuh is saying (and how it sounds), is that you still have to file a 8621 for the first year you hold a PFIC.  I'm past that point, so that's my big concern...what happens when you can't file a 8621 for the first year?  Some things I've read make it sound like a minor deal, where you just pay more in taxes...but other places toss that 10K penalty around, which is what really worries me. 

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#31) On May 26, 2010 at 9:53 PM, Robuh (23.70) wrote:

100oz, the longer he holds it the worse it may be in the *extremely* unlikely event that he gets fined for improperly filing tax returns. This isn't really about gains/losses and the associated taxes; it's more about properly filing tax returns.

And I can't stress this enough: I've never heard of all this bad stuff happening to anyone with CEF/GTU but I'm no expert. You don't want to get too paranoid about this. It's just important to understand that there is a possible problem with the potential PFIC status of these instruments. 

 

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#32) On May 26, 2010 at 10:06 PM, 100ozRound (29.44) wrote:

I tell you what I'd do - contact the fund and see what they recommend.  I'm sure they're quite in tune with the tax liability and I'm sure they'll be happy to answer someone who holds shares in their trust

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#33) On May 26, 2010 at 10:13 PM, 100ozRound (29.44) wrote:

Hold on!  So if I'm reading this correctly, if you don't file the 8621 the first year you hold the fund, you are liable for the taxes based on MARKET value every year you hold the fund?  That's crazy!!

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#34) On May 26, 2010 at 10:26 PM, TeslaPowered (< 20) wrote:

Yes, it is crazy. 

 I'm sure the fund will point me to this (GTU and PHYS have the same type of page)...

http://www.centralfund.com/pfic/PFIC2009.pdf

As I understand it, PFIC status has nothing to do with the entity itself, it's just an IRS classification, which is why so many foreign companies say stuff like "we don't believe we're considered a PFIC for year ____".  Even companies that wouldn't normally be PFIC's, seem like they may qualify as PFIC's, if some kind of special one-time event occured, changing their income structure in a given year.  This makes me wonder about some of the foreign oil stocks I've traded.  

I will contact my online brokers, but I have a feeling I'll get a very generic responce from them, something along the lines that they can't make PFIC determination.

I just can't believe how complicated this is...and I still don't understand the thinking behind its existence.  

I've probably drawn quite a bit of attention to myself by talking to three people at the IRS in a single day, but f*ck it, I just want to put this behind me.

Let this be a lesson to others.  Seems like you're fine if it's going into an IRA, or you can make sense fo the form and file it in the first year.  

 

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#35) On May 26, 2010 at 10:37 PM, 100ozRound (29.44) wrote:

See if you can convert the shares to an IRA?  I wish you the best of luck!!

And thanks for sharing your experience - may it serve to educate those that aren't aware of these issues - like me!

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#36) On May 26, 2010 at 10:45 PM, TeslaPowered (< 20) wrote:

Converting to an IRA is an interesting idea, and one I'll mention to the tax professional, but something tells me it won't make everything better.

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#37) On May 27, 2010 at 10:52 AM, XMFSinchiruna (27.12) wrote:

I have calls in to get to the bottom of the tax implications for these closed-end bullion funds. I will report my findings here. My prior understanding had simply been that gains in CEF were taxable under the "collectibles" capital gains rate, since gold and silver are classified as collectibles by the IRS.

The discussion I see here at the PHYS website does raise some important questions. 

Thanks TeslaPowered for sharing your experience. As a community we will get to the bottom of this.

Shame on the IRS for the inhuman complexity of it all... you know, the way the IRS is promoting software-based filing, even listing providers by name, an impacted investor might have a valid case regarding liabilities born of special situations that are not dealt with within those software packages. Any lawyers among us care to comment?

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#38) On May 27, 2010 at 11:10 AM, XMFSinchiruna (27.12) wrote:

Jimmy2008

1. GDX, GDXJ and SIL: Do they have real assets (underlying stocks) or they are derivative-based?

2. SIVR: Does it have real physical silver?

3. Surprised that you have GLD and SLV in your CAP portfolio.

 

I think I already answered these same questions of your somewhere else, but maybe you didn't return for the reply. :)

1. just normal ETFs holding shares of stocks ... no derivatives.

2. I don't know, why not call them for a tour of their vault? I'm not being funny here ... I really have no way of personally verifying the sanctity of their holdings. What I can say is that many of the heavy hitters in the gold market that I have spoken with have not included that one within their short list of truly reliable (i.e. unleveraged) bullion proxies.

3. I'll be closing out those CAPS positions at some point shortly. In some cases, those picks go back several years to before I became as keenly aware of some red flags impacting the popular funds, and in other cases I have used these instruments to play shorter-term oscillations in bullion prices. I do not, and would not, hold these in real life.

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#39) On May 27, 2010 at 11:18 AM, XMFSinchiruna (27.12) wrote:

Robuh

I agree with your comment #13.

I'm not one to engage in pair trades of the sort, but I certainly would urge investors who may not understand how these premiums work, or they impact their particular investment thesis behind the purchase, to continue with their due diligence until those matters are fully understood.

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#40) On May 27, 2010 at 11:29 AM, MoneyWorksforMe (< 20) wrote:

I understand that PHYS is issuing stock to buy more gold is a bullish sign for gold, but is it for the company as well? I personally would prefer them to just let their already existing bullion appreciate, rather than buying at higher prices and scaring investors. Each time they issue new stock they must pay the underwriters as well--another downside. How frequently do you see PHYS performing follow-on offerings?

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#41) On May 27, 2010 at 11:53 AM, XMFSinchiruna (27.12) wrote:

MoneyWorksforMe

I would expect it to remain a longstanding trend of periodic offerings, as has been the case with CEF, but these offerings are indeed a positive for the company and for unitholders, IMO.

Expansion of the bullion holdings reduces the per/unit cost of maintaining the trust, and it is the means by which excessive premiums can be occasionally held to within reasonable limits.

 

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#42) On May 27, 2010 at 8:47 PM, TMFGalagan (91.82) wrote:

Hi Chris -

Just to be clear, the share drop wasn't really an "erasure" of the premium - even after the drop, it's still at a premium of somewhere between 10.8% and 13.8% per the Sprott website: http://www.sprottphysicalgoldtrust.com/Net-Asset-Value/default.aspx

Granted, that's a lot better than the ridiculous 20%+ premiums from before the offering. 

Personally, I'd much rather pay a reputable coin dealer a much lower 4-5% premium to get physical gold that I hold. But that works best for those who don't trade in and out frequently.

best,

dan

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#43) On May 28, 2010 at 3:27 AM, mhy729 (29.93) wrote:

TMFGalagan

There are coin dealers that sell gold bullion for a 4-5% premium over market price?  The only products I see them selling have numismatic premiums that are quite large, certainly in excess of 5% and even 20%.

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#44) On May 28, 2010 at 3:36 AM, silvermind (< 20) wrote:

Sinch,

 Would SIL have the same PFIC complications as CEF in your humble opinion?

Bill  

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#45) On May 28, 2010 at 4:07 AM, reflector (< 20) wrote:

 

mhy729  : i've been buying pamp suisse 1oz gold bars for $30 over spot price (less than 3% premium) from apmex.com, i've been quite happy with their service.

 

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#46) On May 28, 2010 at 9:54 AM, mhy729 (29.93) wrote:

reflector

Hey, thanks for the info...the pricing certainly looks reasonable.  I was once in contact with another PM dealer, but the problem was that they evaded my inquiries into bullion products and kept trying to push me to purchase their numismatic offerings which had significant premiums to spot price.

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#47) On May 28, 2010 at 10:57 AM, XMFSinchiruna (27.12) wrote:

verymildbill

Nope ... SIL is just a regular mining stock ETF, and would have the same tax treatment as any normal equity.

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#48) On May 28, 2010 at 2:46 PM, XMFSinchiruna (27.12) wrote:

Hi Fools,

Thanks for your patience. Below is the key excerpt from a message I received from CEF in reponse to my inquiry about tax implications for U.S. investors. Their reply was both helpful and very timely.

This guidance does indicate that form 8621 should be filed for every year that one holds units of CEF. This would therefore also be the case for PHYS.

Thanks again to everyone who helped to draw attention to this important matter for bullion proxy holders to understand. I have an article on these issues coming out shortly (or perhaps Tuesday).

Have a terrific long weekend, Fools!

 

Central Fund of Canada Limited is viewed as a Passive Foreign Investment Company (PFIC) for U.S. investors.  Since Central Fund does not sell, loan or lease its bullion, we have "No Ordinary Earnings" and "No Net Capital Gains" to pass on to the investors.  This statement is made in the attached "Notice of U.S. Tax Information to U.S. Persons" which we mail to all registered holders annually in January.  Any gains made on the sale of Central Fund in the U.S. are taxed at the regular stock rate of 15%.  At the bottom of the attached statement, you'll find links to the IRS Form 8621 and instructions for completing this form which should be filed in the first year that an investor holds Central Fund and every year thereafter as well.  This form allows for the QEF election. 

 

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#49) On May 28, 2010 at 8:48 PM, TMFGalagan (91.82) wrote:

Keep in mind that even with the proper elections, you only get the 15% rate if you qualify for long-term capital gains treatment; that is, you hold for more than a year.

best,

dan

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#50) On May 28, 2010 at 9:09 PM, TeslaPowered (< 20) wrote:

Heard back from the IRS, just another canned "beyond our scope" response, and a suggestion to contact a tax professional or request a ruling (which carries an insane fee).  I like how the supposed authority on tax matters just outsources the answer to someone else. 

But, some good news, I heard back from the tax professional.  She said the director there is familiar with PFIC's, and I should just be able to ammend my return, and make the QEF election.  She said they could do it for me and the cost would be $475, which is a lot less than I was expecting...I'm actually a bit skeptical it will be that cheap, but for the moment I'm hopeful.    

Liquidated not only my PFIC's, but all my stocks as well.  Going to toss all those G's into other G's...Gold, Guns, Girls...and probably in that order as well. :)

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#51) On June 02, 2010 at 6:48 PM, TeslaPowered (< 20) wrote:

Turned in all the paperwork today, it's in the hands of the professionals now.  They did mention that they'd have to prepare a letter to the IRS, explaining the late election, but they didn't seem to think it would be an issue or rejected for any reason. 

I see that PFIC's have existed for a long time, but I'm still not sure what the purpose is.  Is it simply a form of capital control?   

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#52) On June 03, 2010 at 12:01 PM, silverminer (30.51) wrote:

TeslaPowered

Thaank you for continuing to provide updates as to your experiences with this matter. As you will see in a subsequent post on my blog, the information you have gleaned continues to help other investors who find themselves in a similar situation.

Much appreciated! If you could bookmark this post and continue to update, I will continue to ensure that the information you collect gets passed on to my readers.

Sinch

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