You may have noticed that I bought some Golden Prospect Precious Metals Investment Trust (Epic Code GPM) yesterday via a Spreadbet at 36.5p and I just wanted to do a quick Blog to show my thinking to Readers. I will not do an extravaganza here because I am tight for time and to be honest I don’t think it is necessary as the Investment Case is pretty simple - in one word, Gold.
My latest Blog can be read here - Gold is at the end:
Why buy an Investment Trust?
Chances are if you follow my Tweets, read my Blogs and read my ’WheelieBin’ webpage, you will most likely have noticed my dislike of Mining Stocks in general and the Smaller AIM Miners in particular. The simple reason for this is that I tend to find they work better as Short Term Trading Chips to flutter in and out of than they do as Long Term Investments which is the kind of thing I am much keener on. Miners are totally dependent upon the End Price of their Commodity upon which they have Zero control - they have no Pricing Power. On top of this, they are prone to problems at mines - such things as Floods, Accidents, Wars, Political shenanigans, Theft, Licence issues, Funding issues, Grade problems, Machinery breakdowns, issues with indigenous peoples, etc. etc. (watch a few episodes of the divine ‘Gold Rush’ on Discovery Channel and you will know exactly what I mean).
For more on this, check out this Blog I scribbled yonks back:
In other words, individual Miners (especially the small ones) are extremely High Risk.
Right, to avoid this issue of Risk around individual Mining Companies, I could have just bought into Gold directly - there are various ways like a straightforward Spreadbet on Gold or Buy an Exchange Traded Fund (ETF) such as PHAU, AUCO or GDX.LN (the last 2 were suggested by @dasvee and @purestockfacts on Twitter - thanks guys !!). Another similar play would be to buy Silver - again this is possible as a spreadbet or perhaps the PHAG ETF (as with all ETFs, you may need to check the currency details on these things). Silver and Gold Prices are very closely correlated.
There are also some US listed Royalty Companies - I am not sharp on these at all but I believe Silver Wheaton is one (NYSE:SLW).
I think there are also some Unit Trusts and @sloan_phil from twitter mentioned MFM Junior Gold and Charteris Gold Fund to me earlier today. I also think there is a thing called the Black Rock Gold & General Fund.
Anyway, I could have done all of those but instead I went for GPM. The advantage of an Investment Trust (or any Fund really) over a straight Gold play like an ETF is that they have an element of ‘Leverage’ because they are a play on Miners, not on the Gold Commodity itself. In other words, if the Gold Price goes up 10%, then a Gold ETF or Spreadet should equally go up about 10%, whereas with a Gold Fund of Miners, a 10% Gold Price rise might result in a 15% rise in the Fund Price or whatever - this is just an example to show you what I mean.
Anyway, the obvious benefit of an Investment Trust (and/or Unit Trust) is that the Risk is spread across a load of Miners and this hugely reduces the Risk that arises from the list of Mining Problems I mentioned earlier.
Oh, before I forget, Huge THANKS to Ben Sharman (@BenSharman on the Tweets) for bringing GPM to my attention back ages ago when we were supping Fine Ale in the Rose & Crown at Woodside, Ascot.
If you click this link you can find more details on GPM in a nice little summary:
From this Factsheet, note the following split across the Precious Metals as at 31st March 2016:
- Gold 51.6%
- Silver 36.1%
- PGM 5.6%
- Diamonds 6.7%
The Investment Trust had 38 Holdings at that date.
Obviously GPM is a proxy for the Gold Price - that is why I bought it !! Therefore, it is vital to look at the Gold Chart to really get a feel for what is happening here - see my Blog with the link earlier in this missive to see how that is looking.
The Chart below goes back about 9 years and shows the swings GPM has had in that time. Note the Long Term Downtrend Red Line I have drawn in and how my Green Arrow points out that it has popped out of this line recently.
My Black Arrow is pointing to where the 50 Day Moving Average (the Darker Blue Wavy Line) and the 200 Day Moving Average (the Lighter Blue Wavy Line) did a ‘Golden Cross’ - how apt that name is on this Stock !! This is Bullish as the name implies.
My Blue Circle is highlighting an ‘Inverted Hammer’ Candle which was formed yesterday (Tuesday 3rd May 2016). Obviously when I bought earlier I did not have this to go on but it suggests to me that the Price may fall back a bit in the very Short Term - maybe it can drop to 31p or something in coming Days - but with the Bullishness Gold is displaying at the moment, I suspect anyone waiting for such a Pullback may be extremely disappointed and I am quite happy to be in the game - you have to be in it, to win it………
It is pretty clear GPM has momentum.
The most obvious Risk around GPM is the Gold Price itself. As you can tell, I am very much of the view that Gold is going up but of course it could turn down again at any point - this would be a drag on GPM. However, it is pretty obvious that the Global Economy and the Financial Systems have major problems what with all this Negative Interest Rates (NIRP), Quantitative Easing (QE) and other such craziness and obscene levels of debt everywhere, and for these reasons I suspect that Gold could really go a lot higher.
Other than that I don’t really see all that many Risks - I guess there are things like Financial Management of the Trust itself and the Honesty etc. of the Directors - but of course that is an issue for any Stock you buy.
There is also a Risk around the Investment Decisions that the Managers of the Fund make - however, they seem to be focussed mainly on Miners which are actually producing Metals rather than just Exploratory Punts. With 38 Stocks there seems a fair spread of the Risks across the Portfolio and the Fund has been around for many years now.
If you haven’t grasped the concept yet, to me, GPM is a way to play the Gold Price !! Therefore, any Target for GPM depends on a Price Target for Gold - it is pretty much impossible to know where Gold is going but it is currently hovering around the $1300 level and it really must be very possible that it can get back to its All Time Highs up around $1900, which is a lot of potential upside. However, I notice on the Gold Chart that $1500 might be quite a difficult Resistance Area so perhaps this is the Near Term Target for Gold. As per the Gold Chart below, there are plenty of Resistance Levels up above that the Price needs to fight its way through.
GPM is currently on a Discount to Net Asset Value (NAV) of 15% - that is quite a big discount although I doubt GPM would ever trade on a Premium or a small Discount - but it could squeeze in a little, maybe to around 10% Discount - this would give a bit more upside in addition to whatever Gold does. Of course, in tough times for Gold, this Discount could widen as the Price of GPM falls. Note GPM issues an NAV value every day via RNS.
Right, that’s it for now, cheers, WD.