To Panic Or Not To Panic

Aug 7th, 2009 – Comment

Could you comment of Central Fund of Canada as opposed to buying mining stocks. I have just sold all my Goldcorp holdings and wondered if this might not be a better way of investing in gold. Thank you, Tony Hi Tony, Your question makes me think of those conversations we have with friends and family […]


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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Could you comment of Central Fund of Canada as opposed to buying mining stocks. I have just sold all my Goldcorp holdings and wondered if this might not be a better way of investing in gold.
Thank you,

Tony

Hi Tony,

Your question makes me think of those conversations we have with friends and family when we have a few minutes to think about life. Is it the destination or the journey? With mining companies you are on a journey of discovery, always asking questions. Will the drill results better define the target? Will the company secure the financing it needs?

Central Fund of Canada ( CEF.A TSX) is the destination. They are mandated to hold at least 75% of their assets in the form of gold and silver bullion. The remaining 25% is allocated to cash  and short term notes which generate  income to cover expenses.

In Q2 2009 CEF.A reported holding 96.7% in bullion. Gold $1.03B, Silver $740.7M, Short term notes $59.87M, cash $1.7m. According to the company the bullion is held in the vaults of CIBC.

cef

Thats the story, now lets look at the chart. The three year chart shows a the stock is in a downtrend and has broken below the 50 and 200 day moving averages. There does appear to be a pendant formation but it looks to have broken support at $13.50 and again at $13.00.

cef21

You can get a better look at the resistance along the 200 day moving average and the downtrend on the 50 day moving average on the three month chart.

au3

Click to zoom

With the bulk of the assets of CEF.A  held as bullion it warrants a look at the chart for gold.

Right now the chart shows a range bound pattern with resistance at $1,000 and support at $900.

ag

Silver is showing resistance at $16.50 and support at $13.00.

Neither chart is suggesting a breakout at this point.

All that being said if you are looking for a secure place as a store of value in anticipation of a surge of inflation, which has the Chinese Central Bank concerned, CEF.A would be a good place to find refuge. You might be heading for the shelter early but as I like to say if you are going to panic, panic first.

Happy Capitalism!

Categories: Mining, Precious Metals
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