Will Central Fund of Canada Recover in 2012?

With 2012 just beginning, now's a smart time to gauge how the stocks you're interested in are likely to do this year and beyond. By knowing what stock analysts and fellow investors expect from a stock, you'll be smarter about whether you should keep buy it for your portfolio -- or sell it if you already own it.

Today, let's take a look at Central Fund of Canada (AMEX: CEF  ) . As I discussed last month, Central Fund's status as a closed-end fund gives investors a chance to own both gold and silver bullion in a single convenient exchange-traded package. But after the roller-coaster ride that precious metals have been on lately, it's hard to feel confident about any gold or silver vehicle's prospects going forward. Below, I'll take a closer look at what people expect from Central Fund and gold and silver.

Forecasts on Central Fund of Canada

Current Premium to Net Asset Value 1.8%
Coin Dealers Avg. Prediction for Gold Price at end of 2012 $1,976
Coin Dealers Avg. Prediction for Silver Price at end of 2012 $48.73
CAPS Rating (out of 5) ***

Sources: Central Fund website; Professional Numismatists Guild.

How will 2012 go for Central Fund?
Central Fund opens the New Year with interesting conditions in the market. Gold finished 2011 up by about 10%, while the silver-owning iShares Silver Trust (NYSE: SLV  ) fell a relatively modest 11%, as the value of the silver it owns dropped in response to falling investment demand. The iShares Silver Trust saw total ounces of silver fall from 351 million at the end of 2010 to 308 million last week.

But recently, there's been a huge disconnect between bullion-owning investment vehicles and the actual mining companies that dig up gold, silver, and other precious metals. For instance, you'd expect Silver Wheaton (NYSE: SLW  ) , which helps finance other companies' mining operations through silver streaming arrangements, to trade roughly in line with silver. But it lost more than 25% last year.

Many miners did even worse, with both Hecla Mining (NYSE: HL  ) and Brigus Gold (AMEX: BRD  ) losing half their value in 2011. Both companies had significant operational challenges that held back results. Central Fund, on the other hand, avoids those concerns by simply buying bullion on the open market.

But most analysts expect gold and silver mining stocks to regain ground in 2012. With higher gold and silver bullion forecasts as well, Central Fund might underperform the miners but still post decent gains this year. It's not a risk-free bet, though -- if an economic recovery threatens to push interest rates higher, then bullion could lose the backing of cheaply financed speculative investment.

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Click here to add Central Fund of Canada to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 03, 2012, at 11:27 AM, Jellywig wrote:

    So if you bought CEF at about 20 bucks, would you hold on to it for 2012?

  • Report this Comment On January 27, 2012, at 8:38 PM, dragonshon wrote:

    Yes, I would. If you bought it at $20, you already have a guaranteed profit/gain; therefore, set a stop limit on it, let's say, at $21 to lock in that gain and just adjust to upside as it moves (eventially) up. There are still too much sovereign debt and political uncertainty in Europe like the US, Middle East, and more this year and I would say for the next 3 years or so. Another thing you can do (concurrently) is buy some mining and/or gold&silver/copper stock companies with little or no debt like RBY, FNV, EGO, etc. in the amount of $6,000 to $20k-$30k depending on your total account value and preference. --T3

  • Report this Comment On February 01, 2012, at 2:04 PM, Jellywig wrote:

    Thanks! i appreciate it dragonshon!

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