Debunking Of Sprott Physical Gold Trust

In a Seeking Alpha article, Dave Nadig of "Index Universe" reveals these facts from the Sprott Physical Gold Trust's prospectus: it's not really an ETF but a closed-end fund. There's only a redemption privilege; there's no way to secure additional shares by bringing gold in. [This defect could be remedied by private-placement secondary offerings, but those are expensive and time-consuming.] The redemption option, only exercisable on the 15th of each month, takes about two weeks to process. One of the selling points of the trust, that its gains are taxable as security gains instead of collectibles gains, is obviated by the fact that the trust itself will be taxed at the collectibles rate if it redeems any gold.


Debunking is needed, but there's one point Nadig missed regarding the one-way redemption-only feature: the lack of arbitraging opportunity means that it's impossible to arbitrage a ceiling. Thus, the trust could sell at a hefty premium without new gold flowing in to erase it. A discount, on the other hand, can be lessened by redemption (inconvenient as the option is.) When parsed, this less-than-ETF feature looks like a plus rather than a minus...even if it means that the Trust's assets will shrink over time.