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Will Central Fund of Canada Be Golden in 2013?

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As 2013 begins, now's a good time to look at the future prospects for the stocks you own. If you don't know where a company's headed in the next year and beyond, then it's impossible to make an informed decision about whether you should add the stock to your portfolio -- or sell it if you already own it.

Today, I'll look at Central Fund of Canada (NYSEMKT: CEF  ) . The closed-end fund posted modest gains in 2012 as the bull market in gold and silver bullion continued, but some aren't so certain about the prospects for precious metals this year. Read on for more about Central Fund of Canada's prospects for 2013.

Stats on Central Fund of Canada

Median Estimate for 2013 Gold Price, Bloomberg


Median Estimate for 2013 Silver Price, Bloomberg


Current Asset Allocation of Central Fund

54.3% gold, 44.9% silver, 0.8% cash

Sources: Bloomberg, Central Fund website.

Will Central Fund keep climbing in 2013?
Based on median estimates for bullion prices this year, Central Fund has a lot of room to run higher. Bullish estimates point to gains of more than 15% for gold and more than 30% for silver, which would lead to a boost in Central Fund's net asset value of 20% or more.

From a fundamental standpoint, many of the positive forces that have pushed gold and silver prices higher over the past decade are still in place. The Federal Reserve is still pushing hard to try to stimulate the economy through easy monetary policy, and all-in cash costs of production and management have been steadily rising, with Goldcorp (NYSE: GG  ) planning to release figures that Motley Fool gold expert Christopher Barker sees coming in near $1,100 per gold ounce.

Moreover, many of those factors support the idea that bullion will continue to be kinder to investors than gold mining stocks. With Kinross Gold (NYSE: KGC  ) and AuRico Gold (UNKNOWN: AUQ.DL  ) both having suffered declines in the past year with mistakes from management that led to ill-advised moves, especially in a rising-cost environment, the advantage of Central Fund is that you don't have to worry about company-specific issues ruining an otherwise sound investment.

The fiscal cliff resolution also favors Central Fund going forward. Low rates on capital gains will continue to give the closed-end fund a tax advantage over SPDR Gold and iShares Silver (NYSEMKT: SLV  ) for certain investors, with only upper-end taxpayers seeing any increase in tax rates at all.

Central Fund's mix of gold and silver gives investors exposure both to the safe-haven status of gold and the industrial applications of silver for a growing economy. With shares currently at a typical premium of 5%, investors can use Central Fund as a reasonable proxy for precious-metals exposure.

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Related Tickers

8/30/2016 1:19 PM
CEF $13.77 Down -0.05 -0.36%
Central Fund of Ca… CAPS Rating: ***
AUQ.DL $0.00 Down +0.00 +0.00%
AuRico Gold CAPS Rating: ***
GG $15.75 Down -0.57 -3.49%
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GLD $125.38 Down -0.93 -0.73%
SPDR Gold Trust CAPS Rating: **
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iShares Silver Tru… CAPS Rating: ***