Digging for Gold on the Trading Floor

I am not a huge fan of gold.

I don’t own any except for what my wife wears from time to time, and the little bit I wear on my left hand every day.

I’ve never bought into the idea that gold would be the currency of choice if the world collapsed as some espouse.

If the world collapses the best currency is probably going to bullets and canned food, and since I live in hurricane company and we are both avid recreational shooters, I have plenty of that on hand…

But I do have a few tricks that make gold more valuable.

Let me show what I mean…

Something is Fishy in Washington

I’m not convinced we can ever go back on the gold standard either unless the rest of the developed world goes with us.

I have war-gamed this out with some friends that possess advanced economics degrees and the range of opportunities for our treasury to be arbitraged away by nations with fiat currencies and bad intentions.

The only alternative would be to close the borders and only trade with other countries who used gold to back their currencies.

Having said all that, one of my keener economist friends recently pointed out that while he wasn’t much of a gold bug, he had purchased some gold when the Fed started pumping money back into the banking system last week.

So far the explanations for this activity have failed to impress me. In the middle of looking into it, I had a moment best described as, “I don’t really trust the government and the numbers don’t seem to add up with the words from my viewpoint. So I think there’s a chance something weird is going on.”

I’m not the only one what appears to think so, as gold has had a pretty decent run over the past six months and interest rates have collapsed.

Of course, there’s no way I’m buying anything unless I can figure out a way to do so for less than everyone else.

I began digging and found that if I’m trading in physical gold, there’s no way to create a bargain price unless I was willing to sell puts on the stuff, but that’s more work than I want to do and it ties up quite a bit of capital.

So I turned to one of my favorite places to create bargains in just about asset or strategy and found exactly what I was looking for in the closed-end fund market.

The Value of Gold

ASA Gold and Precious Metals (NYSE:ASA) is a closed-end fund that invests companies engaged in the exploration, mining or processing of precious minerals, or held as bullion or precious minerals.

The fund has been around since 1958, so one has to assume that they know a little something about investing in gold and silver.

Gold fever hasn’t found its way to the closed-end markets just yet, as the fund currently trades at a discount to the net asset value, which is around 17%.

A look at the long-term chart shows that when gold is in favor and gold bug buying is pushing precious metals prices higher, and the fund will usually go to a premium.

In a gold rally, not only will you be making money off the prices of the miners and metal that you own are rising, but you’ll get a big kicker for discount narrowing and eventually going to a premium over NAV.

The one knock on ASA is that it produces very little income.

I’m a huge fan of cash collection when it comes to investing my money…

And a little additional digging found a way to buy metals and miners while collecting a nice stack of cash along the way.

While the BlackRock Resources and Commodity Strategy Trust (NYSE:BCX) is not entirely invested in mining companies, 38% of it is invested in the sector.

Most of the rest of the fund is invested in energy and agricultural companies which could also see their prices rise if we saw the type of events that push gold higher.

“The Motherlode” Treasure Has Been Found in the Southwestern U.S.

Like ASA, the fund trades at a discount to net asset value right now.

The discount is 13%, and we have seen it go to a premium in the past when the metals and commodity markets heated up, so you have the same two profit opportunities form price improvement and discount narrowing as ASA.

But with BlackRock, you also have an income component as the fund currently yields 8.28%.

To make it just a little bit better, the dividend is paid monthly, so you create a regular income stream to either reinvest, or take in cash.

I don’t know if I’ll decide to fully jump on the precious metals bandwagon, but when I do, I’ll be looking for opportunities like these.

To the Max,

Tim Melvin

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