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Claymore Gold IPO: Sign Of Top In Gold? at Trader’s Narrative

As gold bullion made a third attempt at the round number $1,000 there is a rush to feed a seemingly insatiable demand for gold securitization:

gold continuous futures chart 1000 top

The most recent related IPO was the Claymore Gold Bullion Trust (CGL.un) on the Toronto Stock Exchange. Claymore is a small but innovative Canadian based asset manager and they’ve created a unique product. For starters, the fund will hedge almost all of its currency exposure to the US dollar. So Canadian investors will hold gold in Canadian dollars, not against the US dollar. Second, although structured as a closed end fun initially, if there is a persistent discount to NAV, it will convert to a ETF at the NAV (and therefore, eliminate discounts/premiums that plague all CEFs).

The Claymore Gold IPO was oversubscribed ($460 million Cdn) with over half being taken by large institutions. What really made Claymore’s product attractive to US institutions especially is the different in taxation schemes. By investing in an ‘offshore’ security, US investors can avoid the 28% luxury tax they would normally have to pay for holding gold and instead pay a much smaller 15% tax rate.

In the end, I can’t help but remember what we should have learned long ago: Don’t Buy What Wall St. Sells.

So is Claymore’s Gold IPO a signal for a top in gold?

Consider that the Claymore Gold CEF (probably ETF in due time) joins a quickly crowding field. Sprott Asset Management launched their Sprott Gold Bullion Fund, an open ended mutual fund earlier in the year. These join the existing two gold funds: the Central Fund of Canada (CEF) and Central Gold Trust (GTU) - both of which took advantage of the appetite for gold to raise $200 million each via a secondary offering last month. Even more interesting, the secondary offerings for both of the existing gold CEF’s were done at premiums to NAV.

But all of these funds pale in comparison to the SPDR Gold Shares ETF (GLD), which believe it or not, holds more gold than the Swiss central bank.

Those who bought this IPO placement (Thursday May 28th, 2009) from their brokers at $10 were immediately underwater:

claymore gold ETF IPO

Right now there is a small discount to NAV and the only consolation is that Claymore will convert from a CEF to a ETF if it persists for a few more months. But of course, the value of gold will play a much more important role in whether this was a smart investment or not.

Remember that last year Sprott flagged the top of the commodity bull market by issuing their own IPO. If we’ve learned anything about market timing, it is that when the ducks quack, Wall St. feeds them.

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10 Responses to “Claymore Gold IPO: Sign Of Top In Gold?”  

  1. 1 jeremy

    One IPO is not enough to suggest a top, with all that liquidity flooding the world, and a very clear reverse Head and shoulders, i might be tempted to see things differently?

  2. 2 tweakie

    it’s not just one IPO though.

  3. 3 Babak

    The sentiment is also too bullish.

  4. 4 fxloot

    Hmmmm need to go to the hairdressers and see if the women are talking about buying gold…..then the top is in…lol

  5. 5 pal

    Too bullish? Are we asking ourselves the right questions?
    We are currently in unprecedented territory. With the quantitative easing occuring globally, where else can the precious metals market go but up? This is a once in a lifetime opportunity where you can throw away your charts and stats of times past and deal with the present. Of course metals will have its ups and downs, much of it due to the manipulation of the government who is in bed with the Treasury and Federal Reserve to keep gold prices suppressed - anyone counting the number of ex Goldman Sachs employees who are now employed at the Treasury? It would not be surprising to see the next bubble occur with the miners which could dwarf the Real Estate and Tech bubbles. Long gold, even moreso silver, be patient…..

  6. 6 jeremy

    pal, i agree 100%, did you see what happened to the 10 year bond yield yesterday, or agricultural prices, or oil prices?I think that being negative on something just because sentiment is positive is a “false” contrarian strategy, that will give you too many “wrong” inflection points.

  7. 7 Matthew

    I agree with Pal and Jeremy. Forget the charts, they cannot and will never predict anything. One isolated IPO will never be a signal. Look at the fundamentals for gold: huge US$ stimulus, huge USA Federal debt, both being strong indicators for future inflation. More and more people agree that Au and Ag are safe havens - yes, be patient as Pal says, even I have to say that to myself all the time…

  8. 8 jeremy

    Matthew, nice one.I would not forget charts, but use them as a secondary confirming indicator, they look bullish to me.
    If investing was as simple as reading sentiment, we would all be millionaires instead of running any old blogs.

  9. 9 carol

    Looks like the many “bullish” responses here have confimed a needed correction in gold…maybe not the top, but a little too bullish right now

  10. 10 david

    Count yourself lucky when there is a price downturn in gold. this is the time to buy some more.

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