What's wrong with GTU?

[guineapig]

up 4% yesterday, then plummet 5%+ today. while GLD is only 1%+-. Seems its related to the news that GTU's new offering in Canada and US.
http://finance.yahoo.com/news/Central-G ... 2.html?x=0

Does anybody have any idea of the rationale behind GTU's price hike and plummet? How does that offering affect its tax status?

[AdamA]

up 4% yesterday, then plummet 5%+ today. while GLD is only 1%+-. Seems its related to the news that GTU's new offering in Canada and US.
http://finance.yahoo.com/news/Central-G ... 2.html?x=0

Does anybody have any idea of the rationale behind GTU's price hike and plummet? How does that offering affect its tax status?

Good luck figuring it out! 

[MediumTex]

The new offering was priced at 67.90 (I believe), so it dropped the market price to the offering price.

Apparently, whenever the fund's premium to NAV reaches 10% they will do a new offering.  The fund's premium yesterday was 11%.

Today might be a good time to buy, but then again the premium is still going to be 5% or so.

Earlier this year the premium was negative for a short while.  That would have been a great time to buy.

[guineapig]

thanks, MT. so the new offering has nothing to do with its tax treatment in the US cause they did it before and regularly?

[guineapig]

Also, if they do that regularly, isn't that a arbitrage opportunity?
sell when the premium is close to 10%, and buy back when they issue the new offering?
Any catches?

probably yesterday's surge is due to this arbitrage.

The new offering was priced at 67.90 (I believe), so it dropped the market price to the offering price.

Apparently, whenever the fund's premium to NAV reaches 10% they will do a new offering.  The fund's premium yesterday was 11%.

Today might be a good time to buy, but then again the premium is still going to be 5% or so.

Earlier this year the premium was negative for a short while.  That would have been a great time to buy.

[MediumTex]

Also, if they do that regularly, isn't that a arbitrage opportunity?
sell when the premium is close to 10%, and buy back when they issue the new offering?
Any catches?

probably yesterday's surge is due to this arbitrage.

Since PP investors are already committed to a certain amount of gold ownership, here is one way to play the moves in the premium to NAV in GTU:

Set up your PP gold holdings with 50% GLD (or IAU) and 50% GTU.  When the ratio of these two holdings hits 45:55 rebalance the gold funds back to 50:50.  Note that this rebalancing will occur regardless of what is happening in the rest of the PP.  Over time, the spread between the two gold funds should expand and contract in a way that allows you to capture the GTU premium when it hits a certain level and perhaps be able to buy some GTU when it is trading at a discount.

You would want to fiddle around with the ratios to make sure that you are hitting the sweet spot, but for someone who is already committed to holding a certain percentage in gold, this trick could work pretty well. 

Note that I am not using this strategy, but it always seemed like one that would work.  Do your own due diligence, of course.

[moda0306]

MT,

I'd add that you'd probably want to do the fiddling part in a tax-deferred account with cheap or nonexistant trading fees.

[MediumTex]

MT,

I'd add that you'd probably want to do the fiddling part in a tax-deferred account with cheap or nonexistant trading fees.

Most definitely.

[rickb]

The new offering was priced at 67.90 (I believe), so it dropped the market price to the offering price.

Apparently, whenever the fund's premium to NAV reaches 10% they will do a new offering.  The fund's premium yesterday was 11%.

Today might be a good time to buy, but then again the premium is still going to be 5% or so.

Earlier this year the premium was negative for a short while.  That would have been a great time to buy.

They don't do a new offering whenever the premium reaches 10% (as I recollect it got above 20% a few years ago).  I'm not sure, but they may take some effort to make it unpredictable precisely so it can't be effectively arbitraged.  I think as long as you buy it when it's on the low end of the premium range (say 5% or less) you can pretty much ignore these events.

Since PP investors are already committed to a certain amount of gold ownership, here is one way to play the moves in the premium to NAV in GTU:

Set up your PP gold holdings with 50% GLD (or IAU) and 50% GTU.  When the ratio of these two holdings hits 45:55 rebalance the gold funds back to 50:50. 

Another approach might be to flip between GTU and PHYS whenever the premium for one is 5% more than the other.  For example, GTU was recently about 10% while PHYS was around 2.5%.  So, sell GTU and buy PHYS. Wait.  When/if the premiums change and the difference is 5% or more the other way flip back to GTU.  GTU and PHYS are much more similar than GTU and GLD, so if GTU is the kind of fund you want your gold in this might be a more palatable approach than balancing between GTU and GLD.

Not orthodox PP, but you can also keep a gold/silver balance using GTU and CEF.  CEF maintains a gold/silver ratio of about 1:50 by weight (not value) - so as the gold/silver price ratio changes you can rebalance by value by adjusting holdings of GTU and CEF.  This would be easier if there were a silver only version of CEF (which there is - SBT, but it's still only available over the counter in the US as SVRZF).