On Friday, Matt passed along an e-mail from a trader friend of his recommending the Sprott Physical Gold Trust (NYSEArca: PHYS). On Monday, I noticed a divergence in the price movements of PHYS and SPDR Gold Shares (NYSEArca: GLD):
GLD versus PHYS on May 10
Via Matt, I asked his friend if he thought there was a potential pairs trade in this divergence, shorting PHYS and buying an equivalent amount of GLD. Matt’s friend suggested that the divergence was due to the market realizing the differentiating features of PHYS, namely that it offers physical delivery (in minimum increments of 400 ounce gold bars) and that capital gains on sales of PHYS are taxed at 15%, versus the 28% rate that applies to GLD.
I wonder if the divergence was due to PHYS being a new security (having its initial offering in March) so maybe algorithmic funds weren’t as quick to arbitrage divergences between its price movement and GLD. Or maybe the features Matt’s friend mentioned will materially affect demand for the two securities. I don’t know. Maybe one of you reading this will weigh in in the comment thread below.
Update: Adding a current daily chart here:
GLD v. PHYS Daily
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