Central Fund of Canada Sells Shares to Buy Gold & Silver

Stock Tickers: CEF, GLD

Central Fund of Canada Limited (CEF-AMEX; CEF-A/TSX) of Calgary, Alberta announced today that it plans to offer Class A Shares to the public in Canada and the United States under its existing US$250,000,000 base shelf prospectus filed with the securities commissions (US/Canada) to a proposed underwritten offering by CIBC World Markets Inc.  The real offering is 7.2 million shares that priced at $9.40 for total proceeds of $67.68 million.

Substantially all of the net proceeds of the offering have been committed “TO BUY GOLD & SILVER BULLION,” with additional capital being used to reduce annual expense ratios. Any additional capital raised by any such offering is expected to reduce the operating expense ratio. 

The US equivalent market cap of this Canadian “fund” is $946 million.  Shares closed at $10.01 yesterday and have a $6.08 to $10.64 trading range over the last 52-weeks.  The low for the day is $9.45 and the last price seen was $9.70.  This “fund” traded at under $4.00 back in 2002 and is within 10% of decade highs.

As this capital is being used to buy bullion, it makes you wonder where they think gold and silver prices are going from here.  Even with gold at these levels, they are betting it is going even higher.  We overlayed a chart comparing CEF to the STREETTRACKS Gold Trust (GLD) for comparison here:

Central Fund of Canada Limited (est. 1961) is an exchange tradeable refined gold and silver bullion holding company. Class A shares are qualified for inclusion in many North American regulated accounts. Bullion holdings are stored on an unencumbered, allocated, segregated and insured basis in the treasury vaults of a major Canadian bank and are audited semi-annually in the presence of Central Fund’s auditors and bank representatives.

Jon C. Ogg
November 30, 2006