CEF – Central Fd of Canada Closed End Fd – Gold & Silver

May 25, 2010
Today I am looking at the Central Fund of Canada, ticker CEF, a closed end (commodity) fund that invest primarily in Gold & Silver.  In fact, the fund has to be invested 90% of its net assets in gold & silver, and at least 85% must be in the form of gold & silver physical bullion. This is one great way to get exposure to a combination of Gold & Silver that is backed by the actual bullion without you actually having to store it.

In my opinion, Gold has established a new support level at $1165 per ounce, and is currently at $1197.5 per ounce. Silver has support at 17.67 per ounce, which is where Silver is currently. It is also bouncing off a trend line which is what I like to see. I like to see a support line in very close proximity to  a bottom trend line.

I have been looking for a good entry point for Silver but it got away from me and went well into the $19s. I do not chase an investment if it gets away from me. I will get my chance again if I am patient. Silver has pulled back while Gold held up because it is an industrial metal as well as a currency, so it sold off with these fears of a global slowdown. I agree with the global slowdown, but do not agree with the corresponding percentage pullback in Silver.

Here is my thinking. First, as an industrial metal, they are using up silver as fast as they can pull it out of the ground. There are no significant stockpiles anywhere. Second, as an safe, non-fiat currency store of value, people around the world will start purchasing silver as gold becomes more expensive per ounce. This is especially true for small investors who cannot afford to buy ounces at a time and the spreads to purchase become wider the smaller increments you purchase.

In addition, the “average historical ratio” between Gold & Silver over time has been  15 to 1. Why, because they mine and pull out of the ground 15 times more silver than gold. Simple supply and demand. However, at current relative prices, that ratio is over 67 to 1.

Therefore, on a relative basis, Silver is “cheaper.” In any event, I have already blogger about SLV, the Silver ETF, which is a pure silver play. It may be a better investment for you if you already own gold, but do not own silver.

CEF is a simple, broad way to get exposure to both Gold and Silver if you currently have neither. Technically, it bounced hard off a support and a bottom trend line at $14.07 and is currently at $14.74 (see graphs). Also, volume has been increasing, which is also a good sign in an uptrend. It means more buyers are coming into the security.

This is what I think, let me know what you think.

Keep studying,

Dan Stewart CFA®

Today I am looking at the Central Fund of Canada, ticker CEF, a closed end (commodity) fund that invest primarily in Gold & Silver.  In fact, the fund has to be invested 90% of its net assets in gold & silver, and at least 85% must be in the form of gold & silver physical bullion. This is one great way to get exposure to a combination of Gold & Silver that is backed by the actual bullion without you actually having to store it.

In my opinion, Gold has established a new support level at $1165 per ounce, and is currently at $1197.5 per ounce. Silver has support at 17.67 per ounce, which is where Silver is currently. It is also bouncing off a trend line which is what I like to see. I like to see a support line in very close proximity to  a bottom trend line.

I have been looking for a good entry point for Silver but it got away from me and went well into the $19s. I do not chase an investment if it gets away from me. I will get my chance again if I am patient. Silver has pulled back while Gold held up because it is an industrial metal as well as a currency, so it sold off with these fears of a global slowdown. I agree with the global slowdown, but do not agree with the corresponding percentage pullback in Silver.

Here is my thinking. First, as an industrial metal, they are using up silver as fast as they can pull it out of the ground. There are no significant stockpiles anywhere. Second, as an safe, non-fiat currency store of value, people around the world will start purchasing silver as gold becomes more expensive per ounce. This is especially true for small investors who cannot afford to buy ounces at a time and the spreads to purchase become wider the smaller increments you purchase.

In addition, the “average historical ratio” between Gold & Silver over time has been  15 to 1. Why, because they mine and pull out of the ground 15 times more silver than gold. Simple supply and demand. However, at current relative prices, that ratio is over 67 to 1.

Therefore, on a relative basis, Silver is “cheaper.” In any event, I have already blogger about SLV, the Silver ETF, which is a pure silver play. It may be a better investment for you if you already own gold, but do not own silver.

CEF is a simple, broad way to get exposure to both Gold and Silver if you currently have neither. Technically, it bounced hard off a support and a bottom trend line at $14.07 and is currently at $14.74 (see graphs). Also, volume has been increasing, which is also a good sign in an uptrend. It means more buyers are coming into the security.

Dan Stewart CFA®