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Central Fund Of Canada: 'Excellent Hedge'

 September 27, 2011 10:27 AM


by Bryan Perry, editor Cash Machine

I want to own physical gold and silver bullion denominated in Canadian dollars as a hedge against the unknown path forward for the U.S. dollar and the euro.

The pullback in gold provides investors an excellent entry point to establish a currency hedge. Enter the Central Fund of Canada (CEF).

The fund's purpose is to hold gold and silver bullion on a secure basis for the convenience of investors in the form of shares.

Over 95% of Central Fund's assets are in gold and silver bullion that are traded in the open market.

There are no issues with contracts, delivery logistics, storage, insurance or premium transaction fees as with dealing with gold dealers on an individual basis. It's as simple as it gets.

Established in 1961, Central Fund's gold and silver bullion is stored in the highest security rated treasury vaults at a Canadian charted bank on an unencumbered, allocated and segregated basis.

The chairman and board of directors have over 230 years of combined experience overseeing the fund and the shares can be held in any type of account.

It's the best way I can see how an investor can passively own equal amounts of gold and silver at a 3.2% premium to Net Asset Value denominated in the Canadian dollar.

To date, the fund owns 1,594,644 ounces of gold bullion valued at $3.03 billion (48.9%) and 76,964,103 ounces of silver bullion valued at $3.09 billion (49.9%) with about $72 million in cash on hand (1.2%).

This is a pure play against currency devaluation and thus does not pay a dividend to speak of, but I believe the need for a hedge right now is timely and warranted. Below is a one-year highly constructive chart formation.

I recommend using the current pullback in gold and silver prices this week to position shares of CEF in the event that the fiscal crisis accelerates in Europe before it improves.

I want to shore up our portfolio insurance with a highly liquid gold and silver fund that will provide another layer of safety for us. Buy CEF under $26.
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