Central Fund of Canada

Central Fund's Gold and Silver Bullion is stored in the highest security rated treasury vaults at a Canadian chartered bank on an unencumbered, allocated, segregated and insured basis.

Message: Questions for CEF

Questions for CEF

posted on Jan 18, 2010 06:58PM
Question to CEF
As a shareholder/investor in Central Fund of Canada (CEF) AND HAVING RECENTLY READ THE Collapse of the Dollar by James Turk, can you advise me of CES’s position on the following issues/concerns and if applicable. His book mentions StreetTracks Gold Trust, IShares Comex Trust and Market Vectors Gold Trust as having some issues mentioned below. As a USA investor I believe Canadian funds and banking practices may be better then in the USA. Can you comment on the following concerns.

CEF is an ETF, are Short sales permitted?

Although you mention your custodian bank is audited, Turk advises that third party audits be performed to verify no gold/silver asset is owned twice or more?

Turk further cautions investors about your rules/performance concerning sub-custodians, your rights to audit/inspect custodians/sub-custodians with a possible shortage of assets resulting in CEF being a creditor of the Custodian/sub-custodian?

Can redemptions be suspended in an emergency; can the custodian declare an emergency

In answer to your questions concerning Central Fund, you should be pleasantly contented when you know how Central Fund works.
First of all, Central Fund (CEF) is not an ETF. CEF has been structured differently from an ETF and Central Fund does not sell, loan or lease its gold and silver bullion. We cannot prevent the shorting of shares but very little of that occurs with CEF shares.
Secondly, when you purchase shares of Central Fund, the gold and silver bullion is not allocated to you as an investor. Central Fund does not purchase more bullion when you buy shares so investors do not actually own bullion under their own names. The idea of the bullion being owned twice could not occur with Central Fund.
Thirdly, when we purchase more gold and silver bullion with the proceeds of a public offering of shares, the total amount of the gold bullion is delivered to our own vault at the Custodian place with several weeks. The silver bullion, being so many more bars than the gold quantity, may take slightly longer to be actually delivered into our vaults but there could never be a shortage of assets. Central Fund owns the bullion outright meaning that the CIBC custodian has no right to it whatsoever. If the Custodian closed down for any reason, we would just have to move our bullion to another vault under another custodian.
Redemptions do not take place with regard to Central Fund. If you buy shares through a broker, then you sell them through a broker. You pay and receive the current market price. You do not receive gold and silver bullion. In other words, there are no redemptions for the custodian to suspend. Again Central Fund does not sell, loan or lease out its bullion. We simply acquire more whenever we are able to complete a public offering of shares. We hold the bullion so that you don't have to pay the safekeeping charges and insurance on holding your own gold and silver.
Central Fund also qualifies as a Passive Foreign Investment Company for tax purposes and gains you make are taxed at the regular stock rate of 15% rather than the 28% rate of a collectible ETF.
I hope this helps with your questions.
Yours truly,
Marda Jeffrey, Investor Services
Central Fund of Canada Limited
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