3 closed-end funds for gold buyers

Most investors in the precious metal should avoid ETFs and focus instead on these picks.

By TheStockAdvisors Jul 11, 2012 2:19PM
Image: Gold Bars (© Stockbyte/SuperStock)By Curtis Hesler, Professional Timing Service

Seasonally, gold is often ho-hum during the first six months of the year, only to set a low in July and extend strongly on the up side into October.

If I were short, I'd be anxious about the next "black swan" event that could propel gold suddenly higher. I'd also be apprehensive about that seasonal strength and concerned that there is an important cyclical low due right about now.

As long-term gold bulls, we are not short gold, of course, and for good reason. Corrections are part and parcel of all markets, and we believe we've been experiencing a prolonged correction -- not the end of a bull market.

We have two recommendations that are bullion funds. Central Fund of Canada (CEF) and Central Gold Trust (GTU) are both run by the same management company in Canada. 

These are true closed-end mutual funds that hold physical bullion in trust for their shareholders. It is time to take them off "hold" ratings and reinstate "buy" prices. We recommend buying Central Gold Trust at $60 or less.

Central Gold Trust holds 100% gold bullion, and it should be a part of everyone's precious metal portfolio. CEF holds approximately 50% silver bullion and 50% gold bullion.

I am not as excited about silver, as I see it as speculative; but if you are of a mind to spice up your bullion holdings, a few shares of Central Fund of Canada will give you exposure to higher silver prices. We recommend buying CEF at $18.50 or less.

I need to stress that these are not exchange-traded funds (ETFs), which I strongly caution you against. The tax consequences and investment risk inherent in the structure of ETFs is simply untenable for a conservative, long-term investment vehicle. 

It is also time to consider GAMCO Global Gold (GGN). This is a closed-end fund that hedges its portfolio by selling covered calls. 

This is how they generate the whopping dividends they pay monthly, but this hedging activity also limits your appreciation potential. If you can buy a few shares for $13 or less, the prospects for a great dividend and appreciation to $18 -$19 is very good.

Overall, it has been a long period of frustration for precious metal investors; but if you look at the bull market which began in the late 1990s, these periods have come about from time to time. Patience is the key.

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