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Gold Bulls May Get a New Way to Own It


Sprott Asset Management launches a new vehicle to capture gold's appeal.

All you fans of gold could soon have one more way to play the yellow metal.

Canadian money manager Sprott Asset Management recently filed a preliminary prospectus with the SEC for a $575 million IPO of a small gold trust.

The new fund, called the Sprott Physical Gold Trust, will exclusively hold physical gold bullion, and will list on the New York Stock Exchange under the ticker PHYS and on the Toronto Stock Exchange under the ticker PHY.

The prospectus doesn't specify the date when the product will launch. That won't be known until the SEC approves the application.

The objective of the new vehicle, Sprott says, is to provide a secure, convenient, and exchange-traded investment alternative for investors interested in holding physical gold bullion.

You can check out the prospectus for yourself here.

Sprott, founded by longtime investing pro Eric Sprott, already has a lot of experience with the barbarous relic: As of June 30, the firm had assets under management totaling $4.2 billion, of which $661 million represented physical gold bullion.

The firm, which first began investing in gold nine years ago, also acts as manager for the Sprott Gold Bullion Fund, a Canadian public mutual fund that invests in physical gold bullion.

For more on why the managers at Sprott like gold, and the arguments they marshal in favor of the metal, check out their missive to clients on the subject: "Reasons to Own Gold."

The yellow metal peaked at $1,227.50 on December 3, and is back down to $1,122.90 as we write this afternoon. (See also, The Decoder: The Price of Gold.)

In his morning research note on Monday, Dr. Ed Yardeni of Yardeni Research wrote that the financial crisis in Dubai, mounting concerns about sovereign debt, and stronger-than-expected growth in the US seem to have put at least a short-term top on gold for now.

However, Yardeni emphasizes that gold remains a smart hedge against loose monetary and fiscal policies. The Congressional Budget Office and the Office of Management and Budget are projecting that the federal deficit will approach $10 trillion over the next 10 years.

"In other words, if you own gold as a hedge against out-of-control governments, they are still out of control," says Yardeni.

As gold prices have surged this year, investors have had to choose how best to play the glittering metal.

Options include owning gold bars, although if you're going to keep such precious metals at home, we'd also recommend investing in a thick-necked personal bodyguard or a very big gun.

Investors could mull over committing capital to gold-focused mutual funds. If so, Morningstar research analysts say that the Fidelity Select Gold (FSAGX) fund is worth considering.

They also think Van Eck International Investors Gold (INIVX) is a solid choice, though they're quick to point out that the fund's 1.45% expense ratio gives them pause.

There are, of course, also the ever-popular exchange-traded funds. Such vehicles include the SPDR Gold Trust (GLD), which also holds physical bullion and is now up 27% year-to-date.

In a brief chat this morning, Morningstar ETF strategist Paul Justice told us he remains a fan of this ETF.

"It is very pure form in terms of getting exposure to gold," he says. "It is extremely liquid and widely held so you are probably not going to get stuck with a position there. And, at 40 basis points, it's not like the fee is egregious."

Another ETF investors have moved hard to is Market Vectors Gold Miners (GDX), with holdings including Agnico Eagle Mines (AEM), Barrick Gold (ABX), Goldcorp (GG), Kinross Gold (KGC), Newmont Mining (NEM), and Yamana Gold (AUY).

The ETF is up 42%, year-to-date.

Justice is more cautious about trying to make moolah with the miners.

"You don't get the same diversification benefits that you would get from buying the bullion directly," he says. "They are also subject to some risks that gold isn't. If gold prices stay the same and oil prices go up then the miners suffer. It will cost more to get the gold out of the ground."

For those investors who disagree, and remain truly gaga for gold diggers, there's the Junior Gold Miners ETF (GDXJ), which tracks the Market Vectors Junior Gold Miners Index.

In just the first month of our new Grail ETF & Equity Investor newsletter some of the ETF picks are +26%, +10% & +7% and moving higher. Find out which and don't miss the next big moves with a FREE trial. Learn more.
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