Economist Nouriel Roubini put the risk to the United States economy in perspective when he said: "A near-depression was avoided through a massive monetary and financial stimulus, but at the cost of doubling the public debt and now the main worry is "runaway fiscal deficits."

Roubini continued, "There is a gridlock in Congress over fiscal policy, as Republicans are vetoing raising taxes while Democrats veto cuts in spending, and this does not bode well for the deficit. If we cannot raise taxes or cut spending the path of least resistance is going to be running the printing presses".

In fact, printing vast amounts of money to avoid another recession is the current formula for improving the domestic economy. The question is what happens when this massive flow of money begins to get shut off? 

If the economy weakens, the prospect of a double dip recession increases and the fed will have to print  more money. However, if the economy does get better, the problems with the deficit, and the gridlock in Congress will lead the Fed printing press to continue to print money.   

In either case, the result will be a weakening of the United States dollar and a bullish case for global commodities.  In the years to come, many investors may become suspicious of the value of paper currency and flock to hard assets like silver and gold.

In fact, prospects are good for oil, silver, and gold to double in price against a declining dollar during the next decade.  As a result, it makes sense to use commodities as a portfolio hedge. The question is what investment provides the best opportunity to hedge a portfolio against the Fed's runaway printing press.  eWorldvu has already bought ETF's Silver Trust (SIVR) for the Growth Portfiolio and it has performed very well.

There are a variety of gold miners that could be worthwhile long term equity investments but there is a real investment risk concerning the costs of production for miners. So, the ideal investment would be to buy the underlying metal itself.

With this in mind, a recent initial public offering (IPO) of a closed end gold fund has caught our attention.  Sprott Asset Management has just announced that it had raised $400 million from the initial public offering of Sprott Physical Gold Trust (PHYS) at US $10 per unit. The fund is buying 400 ounce gold bars and is doing so through bullion dealers in Toronto and London.

As a closed-end fund, investors can expect PHYS to trade at a premium or discount to NAV (Net Asset Value) at any time. The expenses are a little higher (.60) than other similar investments like GLD but there are two features about the fund that seem to merit the added expense. 

1. The tax advantage of the Fund per the prospectus states: “Any gains realized on the sale of units by an investor may be taxable as long-term capital gains (at a maximum rate of 15% under current law)”. This would then avoid the 28% tax on collectibles also under current law. There may be circumstances where this can change.

2. The Funds redemption feature works as follows:  An investor in the fund may take physical delivery of a minimum of one 400 ounce bar by contacting the fund on the 15^th of each month outlining the details of the delivery.

It’s up to the holder to make arrangements for delivery and this can be costly and cumbersome. But, an investor may opt to arrange with Brinks or another armored car service to pick-up the gold and transfer it to another storage provider who will take and hold gold bars.

Of course, we have no intention in storing gold bars but there is comfort in the knowledge that we can. In addition, the fund is new and dilution by adding new shares may occur from time to time. However, the low current price of the shares and the investment in gold bars is a unique investment opportunity.

eWorldvu is buying 200 shares of Sprott Physical Gold Trust (PHYS) under 10 dollars on Wednesday March 17, 2010 for both the Model Growth and Model Retirement Portfolios.  eWorldvu members may have a long position in Sprott Physical Gold Trust (PHYS). 

(Please do your own due diligence and understand your risk tolerance prior to making any investment)

http://www.eworldvu.com

Update on Wednesday, March 17, 2010 at 05:05PM by Jim Smith

Bought 200 shares of PHYS in the Model Growth and Model Retirement Portfolio's at $9.99