Buying gold at a discount

Random market observation of the day.

Royal Canadian Mint Exchange-Traded Receipts (TSX: MNT) represent 0.0105516 troy ounces of gold per ETR. This is slowly reduced by the 0.35% annual expense.

Normally this ETR has traded at a premium to spot gold, but for whatever reason, today they are trading at a 2% discount. I noticed this when MNT was down 3% today while gold was flat.

This is like getting a US$35/ounce discount on spot gold. Physical gold typically has around a 4% mark-up.

Redemption costs are relatively reasonable – a 10,000 ETR redemption (the minimum) incurs a 0.9% fee (to get delivered 3 kilogram gold bars plus some residual cash). Getting your gold out in 1 ounce gold coins is considerably more expensive – about 5%.

I have no idea why the discount is suddenly happening today, perhaps a fund or somebody wants to unload it into the market, especially considering the rest of the market is on fire. Gold is a yellow metal that just sits there and looks pretty, and in the form of an ETR, it is even less exciting than a cryptographically-encoded digital collectible. Gold earns a negative income sitting there, compared to Gamespot or some other instrument of legalized gambling.

Sprott has a 64% gold and 36% silver hybrid (TSX: CEF) which has an even higher discount (about 3.9%), but it is considerable more expensive to hold – 0.53% MER. Sprott’s physical gold equivalent (TSX: PHYS) has a 2% discount and a 0.45% MER.

Perhaps there is some sort of arbitrage going on between these two funds.