SLV - CEF: Gold And Silver Bullion At A Yummy Discount

2023-07-12 15:47:03 ET

Summary

• This fund holds physical gold and silver, unencumbered and fully accounted for.
• The discount to NAV is deeper now than when we last covered it.
• We review the fundamentals and provide our current outlook.

The Fund

Investors bullish on precious metals more often than not do not have a way to play this sentiment due to the prohibitive costs associated with owning and storing bullion directly. Sprott Physical Gold and Silver Trust ( CEF ) (CEF:CA) comes to the aid of the aforementioned needy of this service. CEF is a closed end fund that holds gold and silver bullion, all of which are fully accounted for and unencumbered. A listing by serial number is available on the fund website for those inclined. Unitholders with at least 100,000 units can even redeem their units on an exchange for the real stuff. Understandably, there is a process to it , which is again laid out on its webpage. The bars are stored at the Royal Canadian Mint, a Federal Crown Corporation of the Government of Canada. CEF does not cater to speculators looking to make a buck based on short term price movements. For CEF, long term investing is the name of the game. And last but not least, this fund charges less than 50 cents annually for every hundred dollars invested to bring this to the product to your doorstep.

Prior Coverage

CEF was trading at a discount the last time we covered it on this platform. This was back in August 2021 and we saw the muted enthusiasm for precious metals as a positive sign for investors wanting to position themselves for the next bull phase.

Sprott Physical Gold and Silver Trust is one of the best ways to own gold and silver bullion. Unlike the popular ETFs that are around, this fund trades at a nice discount. Do keep in mind that the discount can get a lot more in turbulent times.

But the mere presence of a discount at least suggests that there is a lack of euphoria in the precious metals market. Investors could dollar cost average into this fund overtime to get the bullion allocation and position themselves for the next bull phase.

Source: CEF: Either You're Sprott or You're Not

Back then, CEF had about two thirds of its total assets in gold and the balance in silver. That ratio is around the same now.

That its performance tracks closer to gold than silver comes as no surprise due to this.

CEF, however, is now trading at a deeper discount to NAV compared to August 2021 when it was 3.75%.

The discount to NAV and the fact that it holds silver explains the underperformance against the two gold centered exchange traded funds, iShares Gold Trust ETF ( IAU ) and SPDR Gold Trust ETF ( GLD ). On a positive note, it has outperformed pure silver plays like iShares Silver Trust ETF ( SLV ).

Fundamentals

We continue to believe that bullion can make up some part of your portfolio if you are bullish on the prospects of precious metals. We are not in the camp that believes in the hyperinflation or the US dollar collapse rhetoric and so we have not participated in overzealous accumulation of these funds or related ETFs. We have held a small amount of bullion for a long time and it does not take up too much of our thoughts. For those wanting in on some of the action though, a fund run by Sprott Asset Management and holding physical bullion is the way to go. As noted in our prior coverage, bullion beats the majority of the precious metal mining companies over the long term.

We have no doubt that precious metals will do well over the longer term, from here on out, and physical bullion with a fund managed by Sprott is one of the better ways to play this. To add to that, you get a chance to buy the asset at a discount versus exchange traded funds.

Verdict

CEF is a great "CEF" to accumulate at a discount. Those wanting unencumbered gold and silver, will love the setup. The wide discount is also a reflection of the poor sentiment to some extent. One disadvantage here is that there are no options on closed end funds. So you cannot improve your price point using them. But there are creative ways to bypass that. You could sell cash secured puts on SLV or GLD and when assigned, close out that position and purchase CEF. Most likely you will improve your entry by this method. As we mentioned previously, we are currently bullish on the US Dollar and think a big buy in moment for precious metals will come further down the line. But for those wanting a piece of the action today, CEF is a great choice.

Please note that this is not financial advice. It may seem like it, sound like it, but surprisingly, it is not. Investors are expected to do their own due diligence and consult with a professional who knows their objectives and constraints.

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