A Great Way to Own Gold and Silver by Eric Englund 02/04/2005

FSO Editorials

A Great Way to Own Gold and Silver (You can even put it in your IRA)
by Eric Englund. February 4, 2005

Over the past twelve months, I have written several LewRockwell.com (LRC) essays covering topics such as America's housing bubble, inflation, and U.S. Treasury debt. With the Federal Reserve blowing multiple bubbles in the housing, stock, and bond markets, many of my readers have asked if it is a good idea to purchase physical gold and/or silver. In the context of this question, numerous readers have expressed concerns about safely storing precious metals and have also queried about holding physical bullion in an Individual Retirement Account (IRA). After LRC published my most recent essay, I referred several readers to Gary North's excellent essay Solid Reasons to Own Gold. In this piece, Dr. North provides terrific information as to why one should consider owning gold. Moreover, he mentions that owning shares of the Central Fund of Canada, "...is a surrogate for owning physical gold." It is with the Central Fund of Canada that the aforementioned physical storage and IRA questions can be answered.

So what is the Central Fund of Canada? It is a closed-end fund that trades on the American Stock Exchange under the symbol CEF (it also trades on the Toronto Stock Exchange under the symbol CEF.NV.A). Per CEF's July 31, 2004 third-quarter report:

"Central Fund is currently 97.6% invested in gold and silver bullion. At July 31, 2004, Central Fund's gold holdings were 518,309 fine oz. of physical bullion and 5,282 fine oz. of gold bullion certificates. Silver holdings were 25,928,142 oz. of physical bullion and 245,572 oz. of silver bullion certificates. The physical bullion is unencumbered and held in safekeeping in segregated and insured vault storage by a Canadian chartered bank."

When the management of CEF states that the physical bullion is unencumbered, they really mean it. At July 31, 2004, Central Fund's total assets amounted to nearly $383.1 million including $205 million worth of gold, $168 million of silver, $10 million of cash, with the small balance being marketable securities, prepaids, and accrued interest receivable. Against these assets, CEF's total liabilities amounted to only $791 thousand. With such a pristine balance sheet, the Central Fund of Canada most certainly lives up to its billing as "The Sound Monetary Fund."

Aside from the rock-solid balance sheet loaded with unencumbered silver and gold, there are other positive attributes regarding this closed-end fund (as discussed in CEF's 10/31/03 annual report):

CEF trades on the American Stock Exchange so investing in silver and gold bullion is as simple as calling your stockbroker and purchasing shares of this fund.
Share owners are not bothered with storage, insurance, or assay issues.
Other than the stockbroker's commission, there are no transaction fees or sales taxes of any kind.
The silver and gold bullion is stored in underground treasury vaults at Canadian Imperial Bank of Commerce on a segregated basis.
The bullion is fully insured against destruction, disappearance, and wrongful abstraction.
Bullion holdings and bank vault security are inspected twice annually by directors and/or officers of Central Fund. On every occasion, inspections are required to be performed in the presence of both Central Fund's external auditors (Ernst & Young) and bank personnel.
Central Fund shares serve as a stock exchange tradable bullion proxy and qualify for various "regulated capital accounts" such as IRAs, Keoghs, RRSPs, Insurance, Mutual and Pension Funds where direct holdings of physical commodities may be restricted or are very cumbersome to institute and maintain.
Central Fund was established in 1961.

There is something else that truly struck me, in a positive way, about the Central Fund of Canada. Serving as CEF's Monetary Advisor is none other than Dr. Hans F. Sennholz. the eminent Austrian economist. Dr. Sennholz, as conveyed in Lew Rockwell's essay Misesian For Life, "...was the first student in the United States to write a dissertation and receive a PhD under the guidance of Ludwig von Mises." To me, CEF could not have retained the services of a more qualified Monetary Advisor. This speaks volumes as to the quality of this closed-end fund's management.

Ultimately, it is a personal decision as to whether or not one should own gold and/or silver. If you are looking for an investment vehicle that eliminates the physical storage issue, regarding precious metals, then CEF provides an answer. Furthermore, if you want to hold a blend of gold and silver in an IRA, then the Central Fund of Canada may be your answer as well. Please keep in mind that I am not an investment advisor. Nevertheless, perhaps this information will be useful for those readers who are interested in having an ownership stake in gold and silver.

Eric Englund has an MBA from Boise State University and lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit Hyperinflation.net.

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Eric Englund
Author, Hyper Inflation Survival Guide
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