Sprott Launching Physical Gold Trust ~ market folly

Monday, December 14, 2009

Sprott Launching Physical Gold Trust

It was only a matter of time. Sprott Asset Management has jumped in the recent gold fund pool by filing a preliminary prospectus in the US. While hedge fund Paulson & Co's new gold fund is aimed at betting on gold related investments, Sprott's offering is a little different. Eric Sprott's firm is aiming to launch a $575 million gold bullion fund that will store physical gold and offer investors easy exposure to the metal. This could easily serve as a competitor to the SPDR Gold Trust (GLD) that is currently a popular way for investors to get exposure to the precious metal. This really should come as no surprise given that Sprott had previously penned a piece entitled Gold: The Ultimate Triple-A Asset. Not to mention, their portfolio is littered with metals and mining plays.

If their new product is approved, it will be traded on the New York Stock Exchange (NYSE) under the ticker PHYS and on the Toronto Stock Exchange (TSX) under the ticker PHY. The initial public offering price is to be set at $10 per unit. Sprott's physical gold trust is expected to hold 97% of assets in physical gold bullion in London Good Delivery bar form and will not invest in certificates or other instruments. This fund's goal is to be a play purely on physical gold. Their gold will be stored at the Royal Canadian Mint and unitholders will be able to redeem their units for physical gold bullion on a monthly basis if they so desire. Additionally, as of right now they will not make regular cash distributions to the unitholders.

In summary, it looks like $4.4 billion Sprott Asset Management has entered into the gold fund game as a direct competitor to the SPDR Gold Trust (GLD). While Sprott is targeting a $575 million fund launch, they will have a long way to go to catch up to exchange traded fund GLD as it currently sports a market cap of $40.5 billion. We'll have to see if their offering takes off as Sprott is a relatively household name in the asset management business. For more thoughts from Sprott on the topic of gold, check out their special report on the precious metal.

Despite pulling back sharply over recent days, gold has seen an investment surge over the past year. Check out this video on gold to see logical pullback areas, price targets for gold's move, as well as where to place your stops. Do the launches of John Paulson's gold fund and now Sprott's Physical Gold Trust mark a top in the gold market? We'll have to wait and see.

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