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Why Central Fund of Canada Didn't Tarnish in 2012

By Dan Caplinger - Dec 30, 2012 at 2:00PM

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Let's look back at how the year went for this company.

The year is nearing its end, and now's a good opportunity to look at what happened throughout 2012 to the stocks you follow. If you know the important things that a company achieved, as well as any challenges it failed to overcome, then you can make a better decision about whether it really deserves a spot in your portfolio.

Today, I'll look at Central Fund of Canada (CEF -0.75%). The closed-end fund gives investors an easy way to get exposure to gold and silver prices, but it comes with a twist that most other bullion-oriented investments lack. Read on for more about what happened with shares of Central Fund of Canada this year.

Stats on Central Fund of Canada

Year-to-Date Return

6.8%

Assets Under Management

$5.33 billion

Current Gold Holdings

1,694,644 ounces

Current Silver Holdings

76,964,103 ounces

Premium to Net Asset Value

2.9%

CAPS Rating (out of 5)

***

Source: Central Fund of Canada website.

Why did Central Fund of Canada inch upward in 2012?
Unlike many companies, Central Fund of Canada's intrinsic value is easy to calculate. With its known quantity of gold and silver bullion under management, it's simple to come up with the closed-end fund's net asset value per share as often as you want. With iShares Silver Trust (SLV -1.49%) and SPDR Gold (GLD -0.17%) both up about 7% in the past year, it makes sense that Central Fund's total return is in the same neighborhood.

During 2012, gold and silver haven't performed as strongly as they have in some past years. Despite ongoing actions from the Federal Reserve that would ordinarily be bullish for bullion, prices weren't able to recapture their 2011 highs at any point during the year, and overall economic uncertainty hasn't led to the flight to safety that often benefits gold. Mining stocks have faced even tougher conditions, with the Market Vectors Gold Miners ETF (GDX -2.00%) and Market Vectors Junior Gold Miners ETF (GDXJ -3.75%) both posting losses for the year because of higher production costs and challenges such as worker unrest and weather-related problems.

Central Fund continues to offer a big advantage over the iShares and SPDR bullion ETFs: the potential for lower tax rates on gains. Most bullion ETFs have to pay the higher 28% maximum rate on collectibles, but Central Fund benefits from special tax status that under certain circumstances allows shareholders to qualify for the 15% maximum capital gains rate that stocks enjoy.

Central Fund's future relies on where bullion prices go. At a relatively low premium compared with the 5% to 7% range where its shares typically trade, Central Fund is worth a second look for investors interested in gold and silver.

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.

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Stocks Mentioned

Sprott Physical Gold and Silver Trust Stock Quote
Sprott Physical Gold and Silver Trust
CEF
$17.16 (-0.75%) $0.13
SPDR Gold Trust Stock Quote
SPDR Gold Trust
GLD
$169.61 (-0.17%) $0.29
iShares Silver Trust Stock Quote
iShares Silver Trust
SLV
$19.20 (-1.49%) $0.29
VanEck Vectors ETF Trust - VanEck Vectors Gold Miners ETF Stock Quote
VanEck Vectors ETF Trust - VanEck Vectors Gold Miners ETF
GDX
$28.88 (-2.00%) $0.59
VanEck Vectors ETF Trust - VanEck Vectors Junior Gold Miners ETF Stock Quote
VanEck Vectors ETF Trust - VanEck Vectors Junior Gold Miners ETF
GDXJ
$33.92 (-3.75%) $-1.32

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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