DailyWealth Trader… “recommended going long a special gold fund”

By Travis Johnson, Stock Gumshoe, January 15, 2015

A quickie for the gold enthusiasts to discuss today, since several folks have asked about this “special gold fund” in the last week.

And yes, it’s not a super-hard one… but it’s pretty timely, and I thought it might be worth batting it around a bit.

Here’s the snippet from Stansberry that I got from readers, I haven’t seen the actual email or ad from Stansberry on this one:

“Last week in DailyWealth Trader, Brian noted the extreme pessimism in gold stocks and their recent breakout. He recommended going long a special gold fund… It holds the 25 gold stocks that are most sensitive to changes in the gold price. It ranks them according to low debt levels and high revenue growth… And it weights those stocks based on its rankings.”

This is a new gold miners ETF that was launched by Sprott last year, Sprott Gold Miners ETF (SGDM), and it is indeed designed to focus much more on the “best” gold miners. Here’s what yours truly wrote about it back in October when I mentioned it as part of a general update for the Irregulars on some gold stocks of interest:

“For those interested in speculating on gold miners or gold equities as gold trundles along at these low prices (bottoming? I don’t like that term — it implies you know what’s going to happen in the future… but it has certainly been in a relatively tight range over the last year or so following the huge collapse in gold to the $1,200 neighborhood), I’d suggest that safer ways to play the macro trend are probably the ETFs if you don’t want to build a basket of royalty and high-quality mining stocks yourself. I particularly like the new ETF from Sprott, though it’s not really been tested yet.

“That ETF, the Sprott Gold Miners ETF (SGDM) essentially takes a basket of 25 of the large and midsize gold stocks who have historically been most influenced by gold prices (higher “beta” to gold prices), then weighting those 25 to put more into the stocks with better balance sheets and better revenue growth. This ‘active indexing’ is rebalanced quarterly, and it makes sense to me as a way to weight the better-performing and safer stocks that will react well if and when gold goes up… and yes, Franco-Nevada is the largest holding at more than 15% of the portfolio. And though it is an “active” ETF, it carries essentially the same expense ratio as the dominant gold mining index, the Market Vectors Gold Miners ETF (GDX).”

During those three months, SGDM and GDX have tracked pretty much identically with each other and are up about 3-4%, with the price of gold (as represented by the GLD ETF) up a little less than 2%. Since SGDM was launched in July it is ahead of GDX by about one percentage point (down only 17% versus 18% for GDX), and both are down far more than GLD (which is about 3% lower than it was six months ago). If Dailywealth Trader recommended it last week they’re probably up between 5-10% on it right now, within a few split hairs of where GDX traders would be during the same time period.

So the jury’s certainly still out, but there is almost always substantial leverage in the gold miners when the price of gold moves — so both SGDM and GDX have rocketed up over the last month (SGDM up 28%, GDX up 25%) as gold as jumped up by 5% or so. One tiny bit of evidence that their “active indexing” to choose stocks with better historic leverage to gold prices has generated some excess returns in a good month, though you wouldn’t want to write that in stone for an index that’s been around for less than a year. They have rebalanced at least once since I wrote about it in October, so Franco-Nevada is no longer the largest holding — Randgold has edged them out by a hair.

This fund should continue to be more volatile than GDX, if only because their top three holdings (Randgold, Franco-Nevada, and Goldcorp) are about 45% of the fund. The top three for GDX (Goldcorp, Barrick and Newmont) are about 25% of that fund.

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So, I’d probably still pick SGDM over GDX for gold mining exposure (I don’t own either at the moment) — but that’s slightly risky since it’s a new fund and it isn’t as diversified… and presumably, picking stocks that they expect to be more levered to gold prices means they will go down faster if gold falls sharply again (though both SGDM and GDX will stink if gold falls sharply, so that’s splitting hairs to some degree). The difference between the two has so far been slight, and the last six months indicates that it’s not likely to be worth too much time parsing the differences or worrying over which is better, but it is somewhat encouraging that SGDM has reacted well to gold’s good month. You can explore SGDM a bit on the Sprott website here if you’re curious. GDX is dramatically larger and trades with far more volume, but both have stuck to NAV as far as I’ve seen (no significant premium or discount).

Today’s move, the 5% jump in pretty much all of the gold miners, is mostly a reaction to the Swiss surprise that caused a bit of a safe-haven rush to gold in Europe and drove gold up about 3% — so whether it sticks or not is definitely an open question.

Think you’ll be best off with gold miners, with a particular gold mining ETF, or with physical ownership of the yellow stuff itself? Or perfectly happy to ignore the “barbarous relic” entirely? Let us know with a comment below.


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pat
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pat

i can see people taking silver dimes for loaves of bread in hyperinfaltionary times, i cant really see giving up kruggerands for a tank of gas during that type of event though…

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Rusty Brown
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Rusty Brown

Imagine what each of those King George VI Canadian silver dollars I got for top grades in school some years back will buy when the time comes!
I recall that my parents thought it extravagant at the time to spend a whole dollar for each of those miniature manhole covers. How little they knew.

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Roger Stevens
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Roger Stevens

If someone had a precious metals etf that had a strategy of picking viable mining companies that would leverage higher as precious metals rise, it would be interesting. There must be companies that have large deposits of gold that are uneconomic to mine at present values and that should enjoy great leverage when prices rise.
In the meantime, I don’t need Sprott to find good streaming and royalty companies. If nothing else, I could just read the Gumshoe Detective.

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MRFAIRBETTER
Guest

(SAND)
(ASM)

Patricia
Member
👍689

Good on you Rusty! Personally though, I don’t want to deal with the security problems of storing valuables at home. I like Sprott’s precious metal funds, all of them – the gold and silver ETFs are fully allocated, and I’d rather keep PMs in Canadian vaults than in any U.S. vault (I just trust the Canadians a bit more to not resort to repressive measures like seizure and hope they never prove me wrong!).

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Patricia
Member
👍689

I tend to listen most to those who correctly predicted the U.S. financial crashes over the last 25 years (which are happening at closer intervals and increasing in intensity each time). I’ve long been convinced they are correct in saying that the basic cause of our economic volatility and instability is this now world-wide experiment of using only fiat currencies. Governments and central banks, naturally, favor currencies which are backed by nothing tangible, and so can be created without limit – and so can increase their spending and debt without limit. This system also forces countries to try to “win”… Read more »

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D
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D

A better explanation would be hard to find.

testpack3
Guest

Good article Patricia. I think I’m about right in saying that the M2 money supply in USA and Europe is somewhere between 2-4% of its gold reserves. If Russia ( and maybe include China in an axis), was to start backing the Rouble ( Yuan) with gold reserves, this could be a ‘weapon of mass financial destruction’. Countries that have huge debts, and expensive welfare systems would quake at Au/currency relationship. Will it, can it happen, probably not in the foreseeable future. The Rouble is presently backed by oil price, and that leads to another completely different debate. Readers may… Read more »

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Patricia
Member
👍689

You make some good points. Those countries have openly stated that the U.S. dollar should not remain the world’s reserve currency – but right now they can’t force a change without hurting their own economies badly. That’s not to say they won’t – despots like Putin act on crazy motivations all the time with no care for how much it hurts their people. As for ISIS, as I understand it they are just unthinkingly instituting Sharia law in every way, including going back to gold and silver. Too bad about the association problem – it gives a false argument those… Read more »

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hedy1234
Member
👍1574
hedy1234

Don’t disagree conceptually, but not sure how we function if 90% of paper assets fail. Even if all your metal assets go up ten times to offset the loss on paper, trying to buy you groceries and cable etc. will be very complicated. And what about personal security. When it becomes known that you are one of the few with valuable assets while all your neighbors are bankrupt how does that society function? A ten times increase will result in a silver dollar being worth about $120 and a gold eagle about $13,000. Hard to do commerce with this don’t… Read more »

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Patricia
Member
👍689

All great questions! I do think that the massive, absolutely unsustainable debt levels all over the world (both government and private debt) will eventually result in currency collapses. There’s just been far too much spending beyond our means – it’s that simple. But I don’t claim to be able to predict when it might happen, or how bad it might get. In the past, when new world money systems were created, it was a somewhat simple process. The winners of wars, the most powerful, got to decide. Even when Nixon cut the cord on the gold standard, there was no… Read more »

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tanglewood
Irregular
👍442

Patricia; Can you give us the names of those individuals? ‘I tend to listen most to those who correctly predicted the U.S. financial crashes over the last 25 years ‘

Patricia
Member
👍689

I’ll try to keep this short because I’ve already gone overboard with my comments on this topic (that’s because I’ve been deeply interested in economics since 2006 – but only very interested in investing for two months!). Here are just a few names out of many – people who were or are able and willing to recognize bubbles and predict that they would soon collapse: 1987 stock market crash: Martin E. Zweig 1999-2000 Internet stocks crash, and 2000’s real estate bubble: Professor Robert Shiller 2006-2008 real estate and stock market crash – David and Robert Wiedemer It’s always worth taking… Read more »

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hipockets
Member
👍1233

I found a blog about James Rickards at http://jimrickards.blogspot.com/ .
Interesting comments.

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tanglewood
Irregular
👍442

Patricia; Thanks a lot for all your comments on this thread. Very well written.

bob
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bob

Patricia,
al is correct-and reflective of lots of reading. Have u been able to apply all that time into scoring big profits from the market?

Patricia
Member
👍689

Just saw your comment today Bob – I’m a small investor and don’t know what you’d consider big profits, but I’m very pleased with the ones I’ve had since signing up here. I’m trying to carve out a corner for those of us very interested in this subject, who want to keep the conversation going for as long as anyone cares:

rileybowler
Member
👍5
rileybowler

This is the same stock that was recommended by True Wealth a Stansberry publication a few months ago and we got stopped out on it. It seems to me that a lot of times the same stock that stopped out on one publication at Stansberry is recommened by another Stansberry publication, I guess eventually you might hit the mark

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Quincy Adams
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Quincy Adams

Carl, you may have discovered what I like to refer to as the “Stansberry Shuffle”. They indeed claim that their various publications sometimes don’t agree with each other. This is the case with the “don’t buy anything oil” comment that was mentioned in today’s “Daily Weatlh”. But what I’ve noticed is that a publication of theirs with a large number of positions getting stopped out may get dropped or folded into another one, which is renamed, such as the possibly misnamed “Income Intelligence”, which in Nov 2014 listed no fewer than five oil & gas “buys”. Needless to say, my… Read more »

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hedy1234
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hedy1234

True Wealth has just re-recommended it.

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alastair macdonald
Guest

HI Travis,

Good work. That is the one.SGDM. I have bought about 4% of my capital into SGDM.

The way ahead for me is to hold some gold ETF. The US dollar will inevitably collapse.
The Chinese know this and are buying up more gold than any other nation.

The world economies are becoming increasingly indebted,; one day it will end in a roar.
The USA’s debt payments are getting nearer the total of it’s export receipts!, not further away.

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Yahdoood
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Yahdoood

bought it at $16.65 a few weeks ago and it’s up over $20, can’t complain there! Not sure if it’s something I’ll hold long term, but I’ll keep riding it until I stop out!

quincy adams
Guest
quincy adams

The Chinese are buying gold partly because they hate dollars conjured up out of thin air and it’s easy to store. But it’s really irrational for individuals to own or trade it…you can’t eat it, drive it or text with it…and there are cheaper paperweights.

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Londonian
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Londonian

You’re missing the point, quincy. You can’t eat or drive paper money, or text with it. Same with stock certificates and ones and zeroes on someone’s system that represent them. There’s only one test: what has done better over time – gold or paper money?

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Alan Harris
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Alan Harris

You cant eat or drive gold either….both are representative of a value; both are tangible. But have you ever tried wiping your butt with a 60lb paperweight ? As for which has done best; it all depends what you did with it over which period of time. If you bought blue chips in 2008, and gold as a store of wealth (ha ha), by now the paper would be worth a heck of a lot more. In actual fact, there are very few decades where gold has beaten the stock market (which is bought with paper money). Gold ONLY has… Read more »

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Patricia
Member
👍689

Sure, gold is useless. Care to explain why the world’s central banks keep it in their vaults and are accumulating it? Yes, the world’s uber-rich keep that antique gentleman’s agreement alive (as secretly as possible. wouldn’t want the middle class riff-raff to benefit from owning a little gold in case things blow up again.)

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mrfly
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mrfly

QA, Methinks you have been drinking too much of the Fed’s Keynesian Koolaid! I suggest you drink deeply from the well of Austrian economics. You may find the wisdom of Ludwig von Mises especially quenching. Patricia knows of what she speaks. BTW, above ground silver is three times as rare as gold due to its industrial uses and is virtually certain to eventually outperform gold in almost any economic scenario.

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yclin6
Irregular
👍39

Hi SG,
Thanks, but did you forget to write Irregulars Quick Take?

seeking_that
Member
👍69

Hi SG,

Economists are talking about impending market crash. Indicators listed are:
a) low EPS
b) high P/E
c) Unbalanced Optimism
d) High VIX on the average
e) Index climbs by over 100 % of average expected value. When it does the index will reduce to 50 % of average expected value

http://www.moneynews.com/MKTNews/Market-Collapse-Finance-Stocks/2013/03/01/id/492699/

Is there a better way to find out any forewarnings before an imminent crash ?

Any ideas on these ?
Greatly appreciate it.

Thanks,
s_t

Lulu
Member
👍1294

Seekng that patricia, sharon et all. what a bunch of hooey. It seems they all called the past corrections. All geniuses obviously. So who does one follow, Robert Wiedemer who says hyperinflation, the market will crash in 2013 or is that now 2014, or Martin Armstrong who states the opposite of this article, deflation, long live the market, maybe gold. I say….Perhaps a balanced portfolio is best. I think Ill follow Charles Rutledge and stick to land I can grow food on. Probably doesn’t matter what the Government wants the Government takes, gold, food, oil…..it doesn’t much matter. But are… Read more »

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hipockets
Member
👍1233

Lulu, I like the way you think!

Bill DeLong
Guest
Bill DeLong

Lulu:
Bravo… but I would add a dash of seasoning (a dose of Ben Graham) to your sauce!

Gigabill48@gmail.com

Robert
Guest

Great concept Lulu, just make sure you are ready if the Grinch cometh

Patricia
Member
👍689

Who does one follow – nobody – just yourself! Who should one listen to though, when gathering data to make up your own mind about economic trends and bubbles? That’s more the question. Like you, Jim Rickards believes in a balanced portfolio. He just thinks keeping 10% of it in gold will protect you against a currency collapse. But ultimately, like you, he (and everyone I know) understands that the best security in bad times is owning productive (and/or potentially productive) real estate. You are right about enjoying life – we try, and usually succeed. I can’t always though when… Read more »

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seeking_that
Member
👍69

Thanks Travis, The information shared here on gold assets is very useful. Just wondering if sticking to stocks and gold is still a reliable way of protecting and growing capital, if TED spread chart warnings are followed. I have read that the spread greater than 50 is a red signal and typically market crashes coincide with spikes above the red signal with a fore-warning at least 15 days ahead. If the charts given here are accurate, the stocks could quickly be liquidated when the red signal is crossed which protects the capital at the same time maximizing the profits. Whats… Read more »

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Carbon Bigfoot
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Carbon Bigfoot

I bought my first gold bars at $350/oz. and my first silver at $5.00/oz. Over the years I have purchased a variety of precious metals in varying forms, including numismatic certified 1st Strike Black Diamond coins with found money ( tax refunds, special dividends, etc. ). Storage in undefined locations guarantees access in emergencies. In a true crisis paper anything can only be use to wipe your hemorrhoids. IMHO
PS I’ve NEVER sold anything

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