PHYS: Now You Can Store Your Gold in Canada

February 27, 2010 by  
Filed under Closed-end Funds, Commentary, ETF IPOs (New ETFs), ETFs

Note (added 3/2/10): The article below contains an error.  PHYS is actually a closed-end fund, not an ETF.  For more information, see PHYS is Not an ETF.

Sprott Physical Gold Trust (PHYS), the latest physically backed gold exchange-traded product began trading yesterday (2/26/10) on the NYSE.  The fund also applied for listing on the Toronto Stock Exchange under the symbol PHY, but it appears that Canadian trading has not yet commenced.  The fund will be managed by Toronto-based Sprott Asset Management and will store its gold at the Royal Canadian Mint.

With the introduction of PHYS, investors can now choose between physically backed ETFs that safeguards gold bullion in Zurich, Canada, London, and US vaults.  The fund’s new website does not contain much information at this time.  The prospectus highlights the potential benefits of the offering, which include:

Ability to Redeem Units for Physical Gold Bullion: Unit holders will have the ability, on a monthly basis, to redeem their units for physical gold bullion in a minimum of one bar (350 to 430 troy ounces) for a redemption price equal to 100% of the NAV minus expenses.

Storage at the Royal Canadian Mint: The Trust’s physical gold bullion will be fully allocated and stored at the Royal Canadian Mint.

Potential Tax Advantage For U.S. Investors: Any gains realized on the sale of units for U.S. federal income tax purposes, may be taxable as long-term capital gains (at a maximum rate of 15% under current law, compared to a long-term capital gains tax rate of 28% applicable to physical gold bullion and other “collectibles”), provided that such U.S. investor has made a timely and valid Qualified Electing Fund election with respect to the units. Note: I recommend consulting a qualified tax specialist if you are relying on this claim.

PHYS will have expenses capped at 0.65%, making it more expensive than its major competitors.  PHYS traded more than four million shares on Friday and closed at $9.59.  This means each unit worth less than 1/100 of an ounce.  Its three prime competitors are:

In related news, Eric Sprott, CEO of Sprott Asset Management, purchased 8 million units of the new fund as part of the IPO.  It’s nice to see that management believes in the product.

Disclosure covering writer, editor, and publisher: Long GLD. No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Comments

14 Responses to “PHYS: Now You Can Store Your Gold in Canada”

  1. strongman shelford on February 28th, 2010 10:07 am

    Nice to see some competition for GLD.

    Sprott has a solid reputation. I wish good luck for this new enterprise.

    Strongman Shelford
    http://thenewbiesilverinvestor.blogspot.com

  2. Myron on February 28th, 2010 11:19 am

    WELCOME NEWS!

    With the doubts about whether GLD and SLV actually hold the actual metals they claim, the reputation of Sprott makes a higher management fee acceptable.

    I simply do not trust American bankers or for that matter the politicians who ALLOWED the financial debacle to take place in the first place. I have no objections to hard working contributing people becoming wealthy through legitimate business activities that serve people with superior products and services!

    On the contrary, the BONUSES being paid to the manipulators, leaches and parasites who constitute the major American banking houses and their Ponzi schemes are simply OBSCENE and they should get the same treatment as Bernie Madoff, not millions in bonuses. This is capitalism run amok!

    I am delighted that men of principle are putting their money where their mouth is and giving the average investor opportunity to invest in HONEST MONEY that unlike fiat paper currencies will preserve purchasing power!

  3. Dave Roberts on February 28th, 2010 2:40 pm

    Whats Up???
    I called the R.C.M. got ahold of a employee that said their not a warehouse and they store only enough for minting coins, and that KITCO used to claim the same thing! He went on to say they didnt have the room for them “KITCO” and dosn’t know what i was talking about! SPROTT GOLD TRUST
    Sincerely Look before you leap!

  4. Dave Wrobel on February 28th, 2010 8:51 pm

    Has John Embry purchased any shares of PHY?

  5. Ian Mathers on March 1st, 2010 1:07 am

    I didn’t believe it when KITCO was advertising RCM storage because the mint is a crown corporation and never offered storage to ANYONE. Now KITCO offers it through Questrade whose site claims it is the first to give you the option of holding physical gold (or silver) in your RRSP, RESP (Canadian tax-free retirement and education funds), although Central Fund of Canada – an ETF -has been doing so since the mid 1960′s. They audit frequently and have a proven record of integrity. Even though I have part of my RRSP in this fund, I still prefer to hold the physical metal myself. If you don’t have it in your hand, you don’t really own it and if the investment is known to – or registered with – the government, you have only paid for an interest in something the government and the banks will control. Reject their tax refund bait, buy PM with YOUR after-tax money, and keep it very close.

  6. Dave Webster on March 1st, 2010 1:13 am

    Finally a gold ETF that actually has physical gold and allocates it in your name. For a slightly higher expense fee than the other paper ETF’s its fantastic. Considering the other ETF’s may not have any physical gold at all, and if they do it would be a very small amount on a % basis, their expense ratios are exhorbitant for the gold they actually have.

    Congratulations to Sprott. I expect this ETF to be the #1 ETF in no time at all. People will eventually flow their money to a product that’s real.

  7. uberVU - social comments on March 1st, 2010 10:00 am

    Social comments and analytics for this post…

    This post was mentioned on Twitter by buybullionnow: PHYS: Now You Can Store Your Gold in Canada | Invest With An Edge http://ow.ly/16G9Eg

  8. Ian Mathers on March 1st, 2010 7:13 pm

    Dave;

    It could be said that all ETF’s such as CEFa.to allocate the gold or silver in your name, but considering the claim that this one will both allocate it for you and store it at the Royal Canadian Mint, would make me very leary. It might become the No. 1 but that really means nothing if you have no more than a piece of paper.

  9. Ian Mathers on March 1st, 2010 8:21 pm

    Allocated, my hairy butt!!

    Unit holders will have the ability, on a monthly basis, to redeem their units for physical gold bullion in a minimum of one bar (350 to 430 troy ounces)

    If I had enough cash to ‘allocate’ even one 400 oz bar of gold, I wouldn’t be beggin’ the gobment for my tax refund.

  10. Ron Rowland on March 2nd, 2010 8:23 am

    The allocation will not be done at the individual share holder level. It will only be done at the fund level.

  11. Ian Mathers on March 2nd, 2010 12:58 pm

    My understanding of ‘allocation’ has always been that the investor has a specific item earmarked and that the investor is further given a serial no. or some other identifiable indication that this actually exists and is unique. If you have a share in something with a multitude of other claims on it, then it is not allocated – it is a pool account.

  12. Ron Rowland on March 2nd, 2010 1:17 pm

    Correct, except in this case the investor is the fund/Trust. The fund’s assets are not pooled with others and the fund owns the allocation. The shareholders of the fund are pooled.

  13. Ian Mathers on March 2nd, 2010 1:33 pm

    So, there is no significant difference from an ETF like CEF or a pool account like Kitco offers. The launch of this fund is a non-event. If you don’t have it in your hand, you don’t really own it.

  14. Ron Rowland on March 2nd, 2010 2:09 pm

    Correct. No siginificant difference.

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